Discounter Kmart Holding Corp. yesterday said it will buy department store rival Sears, Roebuck and Co., one of the most venerable names in U.S. retailing, in an $11 billion deal that would create the nation's third-largest retail chain.
The two chains would operate under their current names, but executives said the companies would swap major product lines, giving Kmart shoppers access to Sears's higher-end merchandise and giving Sears's shoppers the convenience of Kmart's locations outside of the mall.
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The combined company would have $55 billion in annual revenue, about 3,500 stores and a broad product lineup including Martha Stewart Everyday and Jaclyn Smith from Kmart and Craftsman and Kenmore from Sears. In total sales, it would trail only Wal-Mart Stores Inc. and Home Depot Inc.
By combining Kmart and Sears, executives hope to challenge bigger rivals such as Wal-Mart and Target Corp., which have battered the two chains with rapid growth, lower prices and technology-driven efficiencies. But analysts say the combined stores, whose sales growth has been lackluster, must dramatically change to succeed.
Both Kmart and Sears have become casualties of a hyper-competitive retail landscape, dotted not just by discounters but niche stores, from home improvement giant Home Depot to electronics titan Best Buy, that have swallowed entire categories of goods and whittled away consumer loyalty to a single retailer.
Sears and Kmart are pioneers of American retailing. Hoffman Estates, Ill.-based Sears, Roebuck and Co., founded by Richard W. Sears and Alvah C. Roebuck, opened in 1893 as the country's first national catalogue operation. Soon it launched stores, selling a wide range of consumer products.
Troy, Mich.-based Kmart is a direct descendant of the S.S. Kresge Co., one of the first of what came to be known as the five-and-dime stores. When the first Kmart store opened in 1962, it was considered an innovative retail phenomenon with its big-box stores, with vast rows of moderately priced merchandise on a single floor.
Both chains' fortunes have fallen since then. Kmart slipped into bankruptcy protection in 2002, recovering only after selling off hundreds of underperforming stores. The chain emerged from Chapter 11 in 2003.
The new company would be called Sears Holding Corp. -- a nod, retail industry analysts said, to the 111-year-old department store's greater prestige.
No immediate store closings are expected, but several hundred Kmart stores would convert into Sears stores as early as March, when executives predict the merger will be complete. Shareholders for both retailers must still approve the deal.