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Merger Approved, Sears-Kmart Can Focus on Reshaping Stores

By Neil Irwin
Washington Post Staff Writer
Friday, March 25, 2005; Page E04

Shareholders of Sears, Roebuck and Co. and Kmart Holding Corp. agreed yesterday to merge the two venerable but troubled chains into the nation's third-largest retailer in an attempt to compete with Target Corp. and Wal-Mart Stores Inc.

Holders of 69 percent of the shares of each company voted in favor of the merger, according to a company statement, consummating a deal announced in January. The combined company, with 3,500 stores and $55 billion in annual sales, is now called Sears Holdings Corp. and is chaired by Edward S. Lampert, the financier who engineered the deal.

A Kmart in Nashua, N.H., gets a supply of Kenmore refrigerators yesterday as it becomes a "Sears Essentials" store. (Jim Cole -- AP)

Sears and Kmart stores have suffered from declining sales for most of the past decade. Kmart recently emerged from bankruptcy proceedings, during which it excised 700 underperforming stores, and many of its remaining properties are in older shopping centers.

The new company faces a formidable task integrating two sprawling retail empires. And it must find ways to squeeze out the $500 million in cost savings and improved sales that it has promised shareholders.

The new Sears is grappling with consumer preferences that have evolved away from the regional malls anchored by department stores. And while it has a strong reputation for selling tools, tires, and major appliances, it has had little success as a seller of soft goods such as clothing and makeup.

The holding company said it will retain both the Sears Roebuck and Kmart names as separately run brands, for now at least. But analysts say the future for both chains is in a new line of stores Sears is rolling out this spring, one that amounts to a hybrid of the traditional Kmart and Sears.

Last year, Sears bought 50 Kmart stores in a transaction that was a precursor to the merger.

This spring, it is opening the first 25 "Sears Essentials" stores, including three in the Washington area, in Clinton, Hyattsville, and Warrenton. Those stores aim to combine some of the most desirable elements of Sears and Kmart.

They are located in strip shopping centers, all on one level, and are meant to be more convenient to get in and out of than traditional Sears stores.

Their checkout lines will be in one central place, rather than spread out as at department stores. However, the stores will still carry product lines that are Sears mainstays, including Kenmore appliances and Craftsman tools.

"It's a hybrid of the big box and the department store," said John C. Melaniphy III, executive vice president of retail consultancy Melaniphy & Associates Inc. "They have to try to make Sears more convenient to the customer to compete with Target and Wal-Mart."

If the experiment with Sears Essentials goes well, Melaniphy and other analysts expect that Kmarts around the country will be converted to the format, with the Kmart brand name perhaps eliminated eventually.

Sears stock fell $6.76, to $50.04, on the day, as Kmart stock rose $7.69, to $132.52. The stock will start trading under its new name and symbol (SHLD) Monday on the Nasdaq Stock Market.

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