Kmart/Sears

Merging any two companies requires change management communications to ensure employee promotion and trust in the business decision. However when the merger is among two of the nation's most recognized brands, the change has greater impression and expectations are higher.

The year of 1992 was the worst year on record for Sears, losing almost 4 billion dollars on over 52 billion dollars in retail sales. The early and mid 1990s were truly trying times for the retail giant and tested the will and resolve of managers and employees alike. During this time the company was in near shambles, morale was low, revenues were suffering, and the bottom line was hemorrhaging red ink. This was in stark contrast to nearly a century of stellar results that Sears had comfortably enjoyed. For Sears, something needed to be done, and fast!

January 22, 2002 Kmart filed bankruptcy, closed nearly 600 stores and fired 57,000 employees, with $17 billion in assets, is the biggest ever for an U.S. retailer. Decline in the company's liquidity resulting from its below-plan sales and earnings performance in the 2001 fourth quarter. The evaporation of the surety bond market, and an erosion of supplier confidence, as well as intense competition in the discount retailing industry, unsuccessful sales and marketing initiatives, the continuing recession, and capital market volatility.

Kmart's CEO Charles Conaway said the chain would reorganize as quickly as possible to "make a fresh start."

Due to slow sales and less traffic at both Sears and Kmart, the two have decided to merge creating one entity named Sears Holdings. Kmart has agreed to buy Sears for $11 Billion. This puts Sears Holdings at the third largest retailer behind Wal-Mart and Home Depot. Although Wal-Mart is a direct competitor with Kmart, Sears Holdings goal is not to compete with Wal-Mart directly, but find areas that have been overlooked by other retailers, and take advantage of the expanded line of products the new company has to offer. Sears has had higher sales than Kmart, so hundreds of Kmart's will be transformed into Sears's stores. As of now, most of Sears 870 stores are only found in malls.

Edward S. (Eddie) Lampert is the go-to money manager. Just 43, he's a self-made billionaire who mixes bets on down-and-out investments with unnatural patience. No one has more faith in Eddie than Eddie. He values his investment because his investments help him out of bankrupt. Eddie Lampert turned once bankrupted Kmart into a $3 billion cash cow. Lampert has built his success on some of the least sexy investments around. He searches for companies that are seriously undervalued, and he'll even risk jumping into ones that are reeling from bad management or lousy strategies -- because the potential returns are far greater.

Although Edward S. (Eddie) Lampert thought merging both Kmart and Sear together was a good idea employees didn't think so. Employees were concerned about widespread job cuts when the new companies moved to close stores and convert hundreds of Kmart stores to the new Sears Essential convenience-oriented format. But officials said that while some layoffs were announced 5,000 people working at the two firms' headquarters, the vast majority of the work force of 400,000 would keep their jobs as Sears Holdings focuses on improving retail. Employee Morale was low. Some people were panicking. What are you going to do? It's cost-savings,"

After Sears merged with Kmart, Sears CEO Lacy had publicly acknowledged that there would be significant layoffs, but as has said, we cannot "return to the status quo." He has said that jobs will be cut and the compensation and benefits might be reduced to levels more in line with what Kmart offers. Associates are being treated as a commodity, not as part of a family that should be pulling together to improve Sears problem performance. Such a mentality does not create a sense of loyalty between employer and employee. Many Sears's employees were told that many of their benefits would be cut, and that their pay would be based on the retailer's profitability. 70% of Sears's employees were of part-time status and turnovers among its part-time workforce had become alarmingly high. Sears employees already had their stock-option grants and guaranteed pensions eliminated. Sears also had ended company-subsidized retiree medical insurance to all new hires and to employees younger than 40, and dramatically cut bonuses to some of its salaried workers. Sears also will eliminate its tuition-reimbursement program, which fewer than 3 percent of its full-time employees used. Business leaders should pay careful attention to the approach that Sears took to improving its bottom line. The urge to drastically cut costs through outsourcing, layoffs, reducing benefits, and streamlining operations might well be overly complex solutions to a relatively simple problem. Sears suspected that low morale and poor employee attitudes towards the company were to blame

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And then there are the Sears retirees -- folks that helped make the company a leading American retailer. It appears that they will be tossed along the wayside, with many Sears "duplicative" associates. The medical benefits for Sears's retirees will probably be secure for 2005 but all bets are off for future years.

Retirees are also customers and shareholders, who have family and friends who are customers and shareholders. So, the takeover team should realize that the potential impact of Sears retiree benefit decisions would be far greater than the actual number of Sears's retirees. Of course, it is the company's right to do whatever they want to do regarding retiree benefits. But, taking away medical benefits is a real slap in the face to all retirees who are not only customers but also shareholders. We sincerely hope that these retirees will remember this "slap" when they cast their vote on the "merger" issue. And if the takeover is approved, through no fault of retirees, these retirees should remember this slap when they decide where to shop.It should come as no surprise that happy employees stay in their jobs longer than unhappy employees should.

Sears