Business / Kmart/Sear Case Analysis

Kmart/Sear Case Analysis

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Autor:  anton  10 November 2010
Tags:  Kmartsear,  Analysis
Words: 1263   |   Pages: 6
Views: 493

In 1897 Sebastian Spering Kresge opened five-dime stores in Memphis and Detroit with John McCrorey as his partner. Two years later the partnership broke up and each person kept one city. Mr. Kresge kept the Detroit store and began expanding from there onward. In 1912 the company became incorporated as S.S. Kresge and was the 2nd largest dime store chain with 85 stores and annual sales of more than $10 million. In 1918 S.S Kresge was listed on the New York Stock Exchange. Throughout the decades, Kresge rapidly expanded eventually opening the first Kmart store in 1962 in Garden City, Michigan. By 1966 there were more 160 Kmart stores in the US and Canada. In 1968 Kmart began airing TV commercials. In the 1970s, Kmart continued to expand opening 270 stores in 1976 alone. In 1977, S.S. Kresge changed its name to Kmart because 95% of its sales were coming from that branch. In the 1980s and early 90s, Kmart diversified by adding other retailers such as Walden Book Company which was the number one bookstore chain in the US. The Sports Authority in 1990, 90% stake in OfficeMax and the Borders bookstore in 1992. Also in 1990 Kmart opened its first Kmart Super Center in Medina, Ohio. Whatever was left of the Kresge locations in the US was sold to S.S. Kresge’s former partner’s store chain McCrory’s. Between 1994 and 1995 earnings began to fall for Kmart causing them to sell off their other operations, OfficeMax, The Sports Authority, PACE, Borders and its US automotive service Centers. Also in that time period, more than 200 US stores were closed. Fast forwarding to the future, Kmart launched which is now known as in 1999. In 2002 Kmart filed for Chapter 11 Bankruptcy which was the biggest retail bankruptcy in US history. By 2003 Kmart was able to emerge from bankruptcy and in 2005 they began selling off their stores to The Home Depot and Sears. The Home Depot bought more than 18 stores and Sears bought 45 for about $524 million. In that same year, Kmart Holding Corporation completed transactions to become a part of Sears, Roebuck and Company now known as Sears Holdings Corporation. Sears Holdings is listed on the NASDAQ under the ticker symbol SHLD. As of 2004 Kmart had 1,422 discount stores, 58 Kmart Supercenters totaling 1,480 stores. 1,323 of those stores were leased and 157 are company owned. Following the takeover, about 400 of Kmart’s nearly 1,500 stores will be converted to Sears’s outlets over the next three years.

Ever since the takeover, Kmart has seen a steady rise in net income from a negative $2418 million in 2002 to a positive $1106 million in 2005. At this time, it may not seem like a lot compared to their top competitors, Wal-Mart which had a net income of $6671 million in 2003 and $10267 million in 2005 and Target with their $1368 million in 2003 and their $3198 million in 2005. From 2002 to 2005 Kmart saw a steady decline in annual sales. They went from $36151 million to $19701 million between those years. Their competitors on the other hand had major growth in annual sales. Wal-Mart went from $217799 in 2002 to $285222 in 2005. Target saw a rise in annual sales from $39888 in 2002 to $48163 in 2004 and a decline of $1324 in 2005 making it $46839. In both the annual sales and income statements for Kmart, the 2005 increase is a result of their becoming part of Sears. Today, Sears Holdings is now the third-largest retailer in the US with about $55 billion in annual sales. Following the mega-merger, the newly-formed company operates about 3,900 stores in the US and Canada. Edward Lampert, who was the largest shareholder in both Kmart and Sears, became chairman of Sears Holdings and owns 39% of that company through ESL Investments. Since becoming the largest retailer ever to seek bankruptcy court protection, Kmart has restructured its top management, slashed its store count by almost a third, and lay off about 57,000 people. And the cutting continues as the management ranks of Kmart and Sears integrate.

Kmart will become the discount store of choice for middle-income families with children by satisfying their routine and seasonal shopping needs as well as or better than the competition. That was Kmart’s Strategy before joining with Sears Holdings. The strength that Kmart had with that strategy was that they were pioneers in the discount industry by having the first discount retail store. Their strategic Alliances with designers of clothing, kitchen, house decorations such as Martha Stewart and Jaclyn Smith gave them a really good advantage over their competitors for a short while. Unfortunately, in trying to be all things to all people, Kmart lost their identity as well as their customers. They were trying to keep their shareholders happy by continuously paying them high dividends which resulted in their not being able to pay their suppliers due to the lack of funds which ricochets to their inability to retain a good credit rating. Another weakness that assisted in Kmart’s downfall was that management was not paying any kind of attention to their competitors. While their competitor were readjusting their strategy to accommodate changing times and trends so they could better serve their customers, Kmart thought that staying with their original strategy will keep them ahead of the game. It was a “why fix it if it is not broke” strategy. They had plenty of opportunities to maintain their competitive advantage by adjusting their strategy but they chose not to. Kmart’s biggest threats were their competitors and by the time that Kmart realized they were behind, it was too late to play catch up.

After joining Sears Holdings, Kmart adopted their Vision statement which says, “Sears Holdings is committed to improving the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships.” The strengths that Kmart posses under Sears Holdings is that they join the third largest retailer in the US and Canada. Their strategic alliance is now bigger because they can now carry the Sears private labels such as Lands End and Kenmore. Strong history of survival because Sears has not had it easy over the years. The weakness, however, is that regardless of the merger, they are still labeled as filling the biggest retail bankruptcy and choosing to continue their relationship with Martha Stewart even when she was having her legal problems. One of their opportunities if they play their cards right is to exploit the tarnishing of their biggest competitor Wal-Mart and also to take international expansion into serious consideration since they have the backing that they need. Their biggest threat will always be their competitors. Another potential threat is a loss of identity. They can’t seem to figure out who they are and what they do as Kmart, becoming a part of Sears’s just gives them more work to do in trying to figure out their identity.

Our Strategic Issue for SHC is, “How can Sears Holdings Corporation strengthen Kmart’s position and regain its competitive advantage? Our recommendations are as follows: 1. Differentiation Strategy: Appeal to low and middle income families with children, Quality clothing and decorating store. 2. Stable & Effective Management: Retention, Value Chain Analysis: Supply Chain, Inventory Control (Product Selection), Technology (Reserve), Overall Consistency, Continue Value Adding Strategic Alliances, Similar to alliance with Joe Boxer. 3. Continue to Evaluate Store Portfolio, Focus on owning more/ Premium space. 4. Meet Customer Expectations, Customer Service, and Continuous Research & Development.

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