Kmart and Sears Merger Essay

Kmart had been established in 1962 by its p arent company S. S. Kresge as a discount department store sourering the most strain of goods at the crushedest prices. Un- identical Sears, the company chose not to locate in large shopping meats but to establish its discount stores in exceedingly visible corner locations. During the 1960s, 70s, and 80s, Kmart prospered. Retail formats in operation Kmart is a scope of discount stores that are usually free standing or placed in a strip malls. Big Kmart signals a different class of Kmart. These stores are hugeger, brighter and strait big savings, big value, big selection and big appliance.Big Kmart stores are designed to increase store realise revenue by increasing the frequency of customer visits. The format focuses on three different businesses home fashions, childrens apparel and consumables and feature of speechs an expanded food area cognize as the Pantry. Kmart Super Center is a range of mountains of hypermarkets that confine everything a regular Kmart carries, but also have a beat grocery piece with meat and poultry, baked goods, a delicatessen, garden produce, and impudent seafood. Most Kmart Super Centers operate 24-hours a day and offer particular serve ups.In 1999 Kmart began offering a dial-up internet dish called BlueLight, which was eventually spun off as an independent company. BlueLight was initially free and supported by standard ads. BlueLight dropped the free service in February 2001 and was reacquired by Kmart in July 2001. In 2002 coupled Online, which also owns NetZero and Juno, bought the BlueLight service after Kmart filed for bankruptcy. In disdainful 2006, Bluelight dropped the banners. As of August 2006, the service appeals $14. 95 a month and has around 165,000 subscribers. promotional Pricing modelPromotional pricing had always been the forte at Kmart. Offering a get off price temporarily in hostel to enhance the effectiveness of product sales efforts to constitute sensitive consumer. In 1990, Wal-Mart over similarlyk Kmart in sales, they tried to wean the company by from this strategy. Kmart cut surgical process on 38,000 items and promoted the with expensive television commercials, which failed to lure younger shoppers. Then Wal-Mart countered by using its greater efficiency and economies of carapace to fight back on pricing. The outcome was 1% drop in Kmarts sales in December and 8% increase in those of Wal-Mart.Financial Analysis earlier to 2001, company was making continues losings, in order to understand scenario we first tumble the period from 1995 to 1998. Here, Kmart started making more or less profit. And the snatch part from the family 1998 to 2002, w here they in reality went bankrupts. In 1995, the firm suffered a huge loss of $571 million. This was because of the non-performance of 127 world-wide stores. It was in the resembling year that COGS as a theatrical role of sales were in any case high as 78%. Ope rating expenses as a percentage was in proportion to that of the industry.However due to the low performance of the international stores, stores outside t United States, Kmart had a bad financial year in 1995. It was the same year that the management decided to do remote with the non preforming stores and thereby closed all its international stores and started four new stores in the home market. The list of stores by Kmart during the period can be seen as under In 1999, COGS was 78% of sales as compared to 72 % of sales in the year 1998. Also, COGS increased drastically compared to increase in sales. sales in 1999 increased by 6. 26%, however COGS increased by 12. 23%.Thus, there was a major decrease in the induce profit from 27% of sales to 21% of sales. This was the beginning of the down arrive of Kmart. From here on, COGS kept on increasing. In 2002 COG reached 85%, thus rough margin reduced from 21% in 1999 to 14% in 2002. During the same time, Kmarts operational efficiency too decreased and it increased from 18% in the year 1999 to 21% in 2002. Thus, increase in the COGS, gruelling of the gross margin and increase in the operational costs, all contributes to the fall of Kmart.Competitors within the industry Its primary competitors were Wal-Mart, Sears, backside, Kohls, and J.C. Penney, with secondary competitors in certain categories. Wal-Mart Wal-Mart followed the depress cost competitive strategy of cost leadership. According to our textbook cost leadership aims at the broad mass market and requires efficient scale facilities, cost reductions, cost and overhead control avoids marginal customers, cost minimization in R&D, service, sales force and advertising. Therefore Wal-Mart could get future(a) benefits this strategy provided defense against competitors, provides a barrier to entry for new competitors and sire increased market share.Wal-Mart managed to brinytain everyday low prices and achieve highest sales in the industry. It should be note d that Wal-Marts 2005 revenues exceeded that of the next ? ve U. S. retailers combined these are Home Depot, Kroger, Sears Holding Company (which includes Sears and Kmart), Costco, and Target. Wal-Marts technological edge is in its logistics, distribution, and inventory control helped it reduce cost and offer customers product cheaper than its competitors. save it could benefit from economies of scale.Wal-Mart also used specialization focus strategy by creating a product and service unique to customers, harmonise to ReferenceForBusiness. com. It could be argued that this feature is not real and just in the mind of the customer customers believed they were world offered something special. Wal-Mart achieved this strategy by offering unique warranties and brand mental pictures. Wal-Mart customers believed they were being provided with something that they cannot insure at any of the stores competitors. Wall-marts value reach worked in following wayVendors, Wal-Marts suppliers con ducted products to Wal-Marts distribution centre of attention or directly to one of the stores. Wal-Mart was able to bargain for the lowest realistic price because of the high volume of sales. Therefore, Wal-Mart could pass this savings to its customers. After that once the products were delivered to the distribution center, they were sorted and placed on trucks to be delivered to stores. This allows for little than 48 hour deliveries to stores and increased efficiency on trucks with backhauls. After products were delivered to the stores, they were placed on the appropriate shelf location for customers to view.Store locations were located throughout the U. S. in rural and urban towns. Moreover customers could purchase products at very low prices and have the ability to return any item. These were the key elements of Wal-Mart value chain. general Wal-Marts competitive advantage over its competitors was efficient run chain management and lower prices achieved through importantt aining low costs. Sears Sears, with the second-highest annual sales, had a tender position in hard goods, such as home appliances and tools. almost 40% of all major home appliance sales go along to be controlled by Sears.Nevertheless, Sears was struggling with slumping sales as customers turned from Sears mall stores to stand-alone, big-box retailers, such as Lowes and Home Depot, to buy their hard goods. Sears main competitive disadvantage was its store locations. Sears has been too slow to expand away from mall locations, industry analysts said. As Sears Chairman Alan Lacy said Our service and products are as good as our competitors but theyre not where our customers are. Target Target was third in sales but second in profits, behind Wal-Mart.It used differentiation strategy and tried to offer customers theatrical role products and had distinguished itself as a merchandiser of stylish upscale products. Targets mission statement focused on great guest service, unused stores a nd speedy checkouts. Along with Wal-Mart, Target had flourished to such an extent that Dayton-Hudson, its parent company, had changed its unified name to Target. Its main focus was statically higher income consumers and early internet adopters. Targets main competitive advantage was good customer service and quality product. This is where it make ups value for its customers.Kohls, and J. C. Penney Both Kohls and J. C. Penney emphasized on nutty goods, such as clothing and related items. They both chose differentiation strategy. Kohls abided on selling both private and exclusive brands which were unaccompanied at Kohls as well as national brands like Nike, Adidas, Lee, Levis, Jockey, Van Heusen. Private and exclusive brands contributed a lot more to the gross margin as Kohls has significant control over the production, manufacturing and trade expense of these brands. Keeping this in mind, Kohls has shifted its merchandise gradually towards this section of merchandise.In 2004, K ohls carried 25% in Private and Exclusive Brands, and this estimate rose to 50% in 2011. Moreover it tried to provide convenience promise to customers an easy and satisfying shopping experience. Kohls organized departments by lifestyle, added signage and graphics depicting key trends, and presented merchandise to suggest how customers can create new looks. They also continued to improve inventory management to deliver more new product more often, to differentiate line mixes according to geographic preferences, and to assure a shelf never empty of products the consumer desires.J. C Penney targeted moderate income customs, mainly women who as company executive said that were with, too little time, too little money, and two little kids. Kmart versus Competitors Kmarts main problem was that it did not have clearly defined competitive strategy. In 2001, Kmart proclaimed a new retailing strategy that included less advertising, fewer advertised specials, and lower daily prices on many i tems. In short, Kmart tried to challenge Wal-Mart as the everyday low-price leader. Wal-Mart responded to the Kmart challenge with still lower prices.These new initiatives further weakened the ? nancial position of Kmart Corporation. The Kmart assault on the Wal-Mart image as the low-price leader failed, and Kmart was left with huge volumes of unsold merchandise (Turner 2003, 7172). Kmart forgot to take into consideration that its capacity to lower prices was limited because of its measly supply chain management, often popular products would be out of stock, in some cases stored in trailors outside of the stores. Kmart was not boffo in using differentiation competitive strategy either.While Wal-Mart reigned supreme as the low cost leader, Target was perceived as being a higher quality retailer. There was basically nothing left for Kmart. In attempt to practise differentiation strategy Kmart updated and enlarged the stores, added name brands, however this was not successful either , acquisitions all performed poorly posting minimal net income or losses and distracted management from core business. Kmarts main competitive disadvantages were problems in value proposition, poor supply chain/inventory management and poor customer service. It needed to choose competitive strategy suitable for it and concentrate on it.