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New Sears Holdings Corp. to Have 3,453 Locations

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NEW YORK ( -- Kmart Holding Corp. will buy Sears, Roebuck & Co. in a cash and stock deal the two firms valued at $11 billion. Kmart expects to complete the merger by the end of March.
With revenue of $60.8 billion, the new entity becomes the second-largest U.S. retailer after Wal-Mart Stores, which takes in $256.3 billion annually.
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Kmart's purchase of Sears, announced this morning, could solve pressing problems for both sides. But while the retailers so far are offering few specifics on what the stores will look like post-merger, one point is clear: The deal's architect, Edward Lampert, is a financier, not a merchant, and he will play whatever cards produce the biggest return on investment.

New strategies
That signals a multi-pronged strategy for the new Sears Holdings Corp.: convert prime Kmart locations to Sears; sell real estate; open new stores; perhaps buy back shares to drive the stock. Meanwhile, rival retailers will keep growing.

Investors liked the deal. Kmart's already surging stock jumped nearly 20% to $118.64 in early afternoon trading. Sears soared 27% to $55.40. A key supplier, Martha Stewart Living Omnimedia, was up 10% at $20.49; Stewart-branded goods sell at Kmart and at Sears' Canadian stores.

Running the show
Kmart is running the show. Mr. Lampert, Kmart's chairman, will be chairman of the new Sears Holdings. Aylwin Lewis, Kmart's recently appointed president-CEO, will be president of Sears Holdings and CEO of Kmart and Sears Retail. Kmart will control seven of the new company's 10 board seats. Alan Lacy, Sears' chairman-CEO, will be CEO of the new company.

Merging these two troubled retailers isn't a new idea. Retail analysts had debated the idea; Advertising Age ran a column last December proposing the merger. The central character: Mr. Lampert, a low-profile, high-stakes investor and the largest shareholder in both firms. Mr. Lampert, who brought Kmart out of bankruptcy in 2003, owns 47% of Kmart and 15% of Sears.

No. 2 after Wal-Mart
The merger combines Sears, the No. 5 U.S. non-supermarket retailer last year with revenue of $41.1 billion, and Kmart, No. 8

Photo: AP
Financier Edward Lampert, who was chairman of Kmart, will be chairman of the new Sears Holdings.

with $19.7 billion in revenue, to create a new No. 3 with revenue of $60.8 billion (including $4.4 billion in Sears' credit card business, which Sears has sold). Wal-Mart Stores was far away No. 1 at $256.3 billion; Home Depot No. 2 at $64.8 billion; and Target Corp. No. 4 at $46.8 billion.

Sears had been No. 1 and Kmart a feisty No. 2 before Wal-Mart began its ascent.

Sears and Kmart already did a small deal: Sears in September bought 50 Kmart locations (and a handful of old Wal-Mart outposts) as part of Sears' effort to expand beyond shopping malls. While the company said it will keep both the Sears and Kmart store brands, the merger now gives Sears an opportunity to speed up that expansion, and push its fledgling Sears Grand superstores, by converting more Kmarts.

Store conversions
Long-sluggish Sears has shown it can move on store conversions. This month it opened a Sears Grand in a building acquired less than two months ago from Wal-Mart. So Sears could move quickly on Kmart conversions after the merger next year. "Sears in a Kmart box ought to do very well," Mr. Lacy said at a media and analysts' briefing in New York this morning.

The combined company will have 2,353 full-line and off-mall stores and about 1,100 specialty stores, vs. 2,949 for Wal-Mart and 1,313 for Target Corp.'s Target Stores, according to figures provided by Sears and Kmart.

But store counts and total sales mask the stark reality: Wal-Mart and Target are stronger, focused retailers with clearly defined brands and appeal.

WPP Group big winner
One winner: WPP Group. The advertising company's Ogilvy & Mather and Y&R networks work for Sears. WPP in January should close on its acquisition of Grey Global Group, which handles Kmart. To be sure, WPP faces pressure as Sears and Kmart labor against strong rivals.

Sears Holdings' L Team -- Messrs. Lampert, Lewis and Lacy -- said Kmart will continue in business even as Sears takes over some of Kmart's prime real estate. Executives were short on specifics on just what's in store or what signature brands -- Craftsman, Kenmore, Martha Stewart, Lands' End -- will be sold at what outlets.

"We have flexibility to let customers decide" what the merged retailer looks like, Mr. Lewis said. Executives vowed they will experiment to see what retail formulas work. While Sears and Kmart experiment, Wal-Mart and Target are executing proven and successful strategies.

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