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Kmart-Sears Merger Presentation

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Annette DeYoung

on 19 December 2013

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Transcript of Kmart-Sears Merger Presentation

Loyalty Program
The Future of Sears Holdings
Effects of Merger
New ventures
Nothing gained

The Beginning
The Product
New Venture
Edward Lampert CEO, took two failing retailers and combined them into one larger failing retailer.
Issues Since Merger
Why do mergers perform poorly?
- Established in 1886 as the Sears Watch Co
- 1895 produced a 532 page mail order catalog
- 1925 Opened first retail store in Chicago
- 1931 established Allstate Insurance Co.
- 1973 opened the Sears Towers in Chicago, becoming the
world's tallest building
- 1993 stopped publishing the Sears Catalog
- 2005 purchased by Kmart Holdings
- Established in 1897 as the S.S. Kresge Co
- 1897 opened 2 stores
- 1913 restricted pricing to no more than $0.10
- 1962 entered large scale discount market, erecting an
average of 85 stores per year over the next 20 years
- 1966 the "Blue Light Special" was introduced
- 1977 changed it's name to Kmart
- 2005 purchased Sears Roebuck & Co
Within 3 weeks of merger announcement, more than 8 top executives sold or exercised stock options totaling more than $15.7M
Corporate Changes
With the downward spiral of Sears Holdings revenues and market share, Edward Lampert, CEO and Chairman was recently quoted making this promise:
Its already been done!
by Annette DeYoung
Managerial Economics
BSAD 503
To produce the "promised" $500M cost savings, Sears Holdings Chairman and now CEO has:
Sears Holdings has lost 83% of its stock value since 2007
Create a new brand
Turn old Kmart stores into free standing Sears stores
New venture
The Result?
Bad venture
Rewards Card

Shop Your Way was introduced to create a loyalty program and get customers to come back to shop and earn points that can be redeemed for future purchases.
The Shop Your Way program has evolved into it's own website, mobile app and social networking community.

ShopYourWay.com says, "Shop with help from your friends. Explore interesting products and share shopping ideas."
Merger Announcement
November 17, 2004, Kmart Holdings Corporation announced its intention to purchase Sears, Roebuck and Co.

The new corporation announced that it would continue to operate stores under both the Sears and Kmart brands.

Kmart bought Sears for $11.9 billion and created Sears Holdings Inc.

Sears updated their intranet weekly to reassure employees on stock value and reasons to be optimistic about the future of Sears.

Merger would create the 3rd largest retail company in the United States, behind Wal-Mart and Home Depot.
$52.99 per share
Stock Price
$109 per share
Stock Price
Merger Analysis
Since merger Sears Holdings has had:
5 CFO's
4 CEO's
2 CIO's
Raised Prices.
Averaging 15 - 20% more than the competition
Cut capital spending and marketing budgets.
Capital budgets decreased from $1.1B to $513M
Purchased $3 billion in own stock and reduced outstanding shares to increase income per share.
Net Income per share still fell 38% despite the buyback
Stores have become increasingly rundown and shabby due to the cuts in capital spending, making them less appealing to shoppers.
Sears Holdings has faced 27 straight quarters of losses.
Sears Essentials was created to get out of the traditional "Mall" footprint
The Soultion?
Again, due to budget cuts in capital expenditures, the old real estate was not invested in.
New Sears products + old Kmart stores = FAILURE
Sears Holdings ditched the idea after only one year
Although Sears Holdings has claimed this program a success, only about 3% of their sales originate from the Shop Your Way program.
"Sears will be unrecognizable in 30 years. We are emphasizing online sales, mobile apps and an Amazon like marketplace"
This quote followed a company report that they will be closing between 100 & 120 stores in 2014
Sears Holdings promised an annual cost savings of $500M within the first 3 years following the merger.
$300M would come from an increase in purchasing power and improved supply chain.
$200M would come from the cross-selling of products.
Full transcript