KMart VS Sears free essay sample

On January 22, 2002, Kmart Corporation became the largest retailer in U. S. history to seek bankruptcy protection. Kmart management said that they would outline a plan for repaying Kmart’s creditors, reducing its size, and restructuring its business so that it could leave court protection as a viable competitor in discount mass-marketretailing. Emerging from bankruptcy in May 2003, Kmart still lacked a business strategy to succeed in an extremely competitive marketplace. Out of bankruptcy, Kmart became profitable primarily by closing or selling (to Sears and Home Depot) around 600 of its retail stores. Management had been unable to invigorate sales in its stores. Declared guilty of insider trading, Martha Stewart went to prison just before the 2004 Christmas season. In a surprise move, Edward Lampert, Kmart’s Chairman of the Board and a controlling shareholder of Kmart, initiated the acquisition of Sears by Kmart for $11 billion in November 2004. The new company was to be called Sears Holdings Corporation. Even though management predicted that the combined company’s costs could be reduced by $500 million annually within three years through supplier and administrative economies, analysts wondered how these two struggling firms could ever be successful. Sears Holdings Corporation is the leading home appliance retailer as well as a leader in tools, lawn and garden, consumer electronics and automotive repair and maintenance in United States. Its key brands includes Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has the Country Living collection, which is offered by Sears and Kmart in 2011. It is the ninth largest retailer by annual revenue in the United States trailing behind Wal-Mart, The Home Depot, Costco, Target, CVS Caremark, Walgreens, Kroger, and Lowes in 2009. It is currently listed at number 48 in the Fortune 1000 companies list in 2011. It has a very strong retail network in United States and Canada. The company operates 3,900 retail locations under the mastheads of Sears, Sears Grand, Sears Essentials, Sears Hometown Stores, Sears Hardware, Kmart, Big Kmart, Super Kmart, The Great Indoors, Orchard Supply Hardware, and Lands End stores. The company has a very strong managerial capability that manages its wide range of retail outlets in USA and Canadian markets. Weaknesses After the merger of Kmart and the Sears, Roebuck and Co. , the Sears Holdings Corporation has faced consistent declines in its revenues. The first year after its merger, the income of Sears Holdings plunged 84% from $858 million in 2011. Eddie Lampert has held the title of chairman of Sears Holdings over time period of declines. The first quarter of 2011 did not appear any better, with the company posting a net loss of $170 million for the quarter ended April 30. Some industry analysts feel the heart of the problem is caused by Eddie Lamperts penny-pinching cost-savings by stifling investment into stores. Instead, the company has been buying back stock and increasing its presence online in 2011. This situation has increased the debt requirement threat for the company in order to meet its business operations requirements. Sears Holdings Corporation has its retail outlets mainly in US, Canada and Puerto Rico. There is a trend in the market that large number of organizations is directing their business operations to the emerging markets of China, India and Japan. These developing markets show great potential of growth and success to the companies operating in them. If Sears Holdings expands its business operations to these markets, then there is a strong likelihood of its success in these markets. There is a growing trend in the American markets for the retailing of health care related brands. Sears can think of entering into this segment to expand its branding and business portfolio. This can increase its market share to many folds. Moreover, there is a common practice among the other market players that they are engaged in the manufacturing, and marketing of private labels. Sears Holdings already has lot of private labels in the markets. All it has to do is to re position its brands in order to maximize their impact in the current markets. There are number of threats that can adversely affect the business of Sears Holdings Corporation. The biggest threat faced by Sears Holding Corporation is the competition among the local, national and international retail companies. The retail business is a cut throat competition. The market players have multitude of businesses across various states of US and around the globe. Moreover, many companies are merging and becoming large entities. The recent merger of K-Mart and Sears has allowed Sears Holdings Corporation to offer each other’s product lines in both stores reaching a larger consumer base. Another threat faced by all these market players is the recession faced by the US economy. Sear’s revenue growth will likely be affected. The housing market crisis combined with an increase in food and utility prices leaves consumers with less disposable income. Then the minimum wage rate set by the US government has increased the labor costs of the companies operated in the United States which has in turn increased their costs of doing business in the markets. Sears Holdings business has been and will continue to be affected by the worldwide economic conditions; a failure of the economy to sustain its recovery, a renewed decline in consumer-spending levels and other conditions, including inflation, could lead to reduced revenues and gross margins, and negatively impact its liquidity ratios. Many economic and other factors are outside of control, including consumer and commercial credit availability, consumer confidence and spending levels, inflation, employment levels, housing sales and remodels, consumer debt levels, fuel costs and other challenges currently affecting the global economy, the full impact of which on Sears Holdings business, results of operations and financial condition cannot be predicted with certainty. These economic conditions adversely affect the disposable income levels of, and the credit available to, customers, which could lead to reduced demand for merchandise. Their vendors are also affected, upon which it depends to provide with financing on the purchases of inventory and services in 2011. Sears Holdings compete with a wide variety of retailers, including other department stores, discounters, home improvement stores, consumer electronics dealers, auto service providers, specialty retailers, wholesale clubs, as well as many other retailers operating on a national, regional or local level. Online and catalog businesses, which handle similar lines of merchandise, also compete with Sears. Walmart, Target, Kohl’s, JC Penney, Macy’s, Home Depot, Lowe’s and Best Buy are some of the national retailers with which it competes. Home Depot and Lowe’s are major competitors in relation to the home appliance business, which accounted for approximately 16% of 2010 and 15% of 2009 and 2008 reported revenues. Sears Canada competes in Canada with Hudson’s Bay Company and certain U. S. -based competitors, including those mentioned above, that may be expanding into Canada. Success in these competitive marketplaces is based on factors such as price, product assortment and quality, service and convenience, including availability of retail-related services such as access to credit, product delivery, repair and installation. Additionally, Sears Holdings is influenced by a number of factors including, but not limited to, the cost of goods, consumer debt availability and buying patterns, economic conditions, customer preferences, inflation, currency exchange fluctuations, weather patterns, and catastrophic events in 2011. The threat of substitute products in case of Sears Holdings Corporation is high. There are various retailers in the market competing with each other. This makes the great degree of availability of alternative products to the buyers. They have significant amount of product choices and option available. The high rate of substitutes for products is then considered a threat for Sears Holdings Corp. But there are certain barriers to entry in the markets currently. This means that the threat of new competitors in the markets is low. The new entrants have to comply with the government regulations in order to enter the markets. There is trade restrictions imposed on various levels that discourages many new entrants to start their business set up. In retail industry, Sears Holding Corp. and its counter parts are protected by a number of barriers to entry, which makes it difficult for new business entrants to rise and compete. One of these barriers is the requirement of huge working capital to start the business operations in order to compete with the existing giants in the market. In order to acquire the right workforce, supplies and distribution channels, the starting company must have a high initial capital. This barrier to entry then prevents other firms to compete effectively with other global companies such as Sears Holdings Corp. Sears should have of had a better Functional strategy.