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Shopko and Pamida Merger Puts Focus on Small Towns

January 5, 2012

The announcement yesterday that mass merchants Shopko Stores and Pamida would merge into one company under the Shopko name is being presented as big news for the small communities the two separate chains have specialized in serving.

Shopko, based in Green Bay, WI (Go Packers!), currently generates around $2 billion annually from 149 stores in 13 states stretching from the Midwest to the Pacific Northwest.

Pamida, based in Omaha, NE, operates 193 locations in 17 states in the Midwest, North Central and Mountain regions. The chain has annual revenues of roughly $1 billion.

The two businesses, both owned by Sun Capital Partners, will combine into a single chain with 350 stores in 22 states and plans for expansion. The company expects to invest $80 million over the next year to convert stores with the Pamida banner to the Shopko Hometown store concept.

The Shopko Hometown format, developed in recent years, is a smaller store concept, with locations ranging from 15,000 to 35,000 square feet. They combine pharmacies with national and private label clothing, consumer electronics, seasonal merchandise, toys and other products.

W. Paul Jones, president, chairman and CEO of Shopko, will continue to lead the company from the newly combined company's headquarters in Green Bay.

"Merging Pamida and Shopko is a great move for our businesses and our customers given our complementary strengths, store networks and consumer-centric retail models," Mr. Jones said in a press release. "The Shopko Hometown store format, featuring our unique merchandising strategy and improved store design, is an ideal fit for the smaller communities that Pamida serves with its exceptional service and community-minded approach. We intend to be the leader in this category by combining the best of Shopko and Pamida in our aggressive new store growth plans."

Jerry O'Brien, executive director of the Kohl's Center for Retailing Excellence at University of Wisconsin-Madison, thought the retailer's small town and rural focus could produce dividends.

"To find new places right now with the growth that Target and Walmart have had is very challenging," Mr. O'Brien told the Wisconsin State Journal. "I think it's really good for these towns. Some of these more outlying towns are not very well served. This will be fun to watch."

Discussion Questions:

Discussion Questions: What is your reaction to the Shopko and Pamida merger? Will the move to the Shopko Hometown banner for former Pamida stores and the emphasis on smaller communities prove a winner for the newly combined chain?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How optimistic/pessimistic are you that the Shopko and Pamida merger will be a success?

Comments:

The focus of small towns and C and D counties is very solid for the merger of Shopko and Pamida, however, the success of the merger will be only as good as the new company's ability to be attractive and competitive. No town is small enough to be far enough away from the nearest Walmart. What both these retailers need is to strengthen their relationships and partnerships with suppliers that provide products and services to them.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

What is not said in the press release is important to note. Both of these companies are owned by the same capital investment company and they have been for quite some time. Knowing full well how these folks think, the merger very likely had much less to do with marketing strategy and more to do with economies of scale and HQ efficiencies. Not that that is bad, but all of the smoke screen about serving small communities and such is likely to be more of a talking point than a rationale for the merger.

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Mark Heckman, Principal, Mark Heckman Consulting

As an addendum to my earlier post, I recognize that author of the submission on the Pamida and Shopko merger, George Anderson did mention their common owner, Sun Capital, but an earlier press release that I read yesterday, did not. Sorry if my comment might have been confusing.

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Mark Heckman, Principal, Mark Heckman Consulting

I believe that this is more of a survival strategy than a growth strategy.

Neither chain, alone, has sufficient resources to compete against the nationals over the long term. This merger will provide efficiencies in the supply chain, home office and merchandising areas which will help to stabilize and potentially decrease operational expenses.

The investment in a single banner with a focus on smaller stores serving smaller communities is a good one. There is a trend playing out in the retail world today that says "small is better". The proof of this may be found in the struggles that large footprint retailers are having in maintaining their comp store sales and the growth of sales within small store formats such as the dollar stores.

Therefore, the strategy to merge will allow operational efficiencies necessary to invest in the rebranding and merchandising of a store format that has a far greater chance of competing going forward than either Pamida or Shopko currently have alone.

Charles P. Walsh, President, OmniQuest Resources, Inc

Walmart will eventually destroy them as they move into smaller markets with smaller supercenters. I noticed in the announcement there is no mention of Walmart's proposed stores in their markets.

David Livingston, Principal, DJL Research

The merger of ShopKo and Pamida shines fiscal sun on owner Sun Capital. Serving smaller communities has great potential for creating more sense of community with customers and more cents in the cash register. Now the challenge will be in the execution of the merger into the ShopKo banner ... while keeping an eye on any similar-sized formats coming forth from Walmart and Target.

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Gene Hoffman, President/CEO, Corporate Strategies International

Let's hope they invest in the stores as described. Pamida is a tired, over-priced format. David is right that every shopper in C and D will vote with a gallon or two of gas to shop a better format with more attractive prices at a Target or Walmart.

Charles Billups, Dir New Product Development, In-Store Marketing Institute

It's smart. And yes, certainly will generate economies of scale/operating cost savings. It will take time to make that happen, but once realized the combined entity will compete at an increased level of productivity. For the communities they serve, assume the store brands will remain intact.

David Slavick, Director, Loyalty & Retention, FTD.com

Like many of my BrainTrust associates I think this sounds more like a merger of necessity to combine assets and work toward survival. Growth is the long range goal if the survival piece succeeds.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

The merger should prove to be beneficial for both retailers. With better buying power and consolidation of overlapping functions, the combined company can expect to see cost savings that will drop to the bottom line and pricing that will be more competitive in the market. If this does not happen, the entire exercise was a waste of time.

Store size is great and will be an asset to the new combined company as larger retailers try and figure out how to open smaller formats. One word of caution is the name change. My hope is these two learned something from Macy's and find a way to gradually introduce the new store so they don't alienate loyal Pamida customers.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

I could have sworn that back about six years ago, Shopko and Pamida were "demerged." Maybe I am wrong. I thought Shopko bought Pamida when it was public more than a decade ago.

I was able to visit my first Pamida a couple months ago in a rural NE town. The nearest Walmart was about an hour away, but there was also a good sized Alco in this town, comparable in size to a group 9 Kmart.

The Pamida was, frankly, a nightmare. Dark, cluttered, very high prices, a lot of dust. I was surprised. Shopko usually runs a decent store and I was somehow expecting this to be a small Shopko. It was not even remotely what I was expecting. I saw virtually no merchandising cross between Pamida and Shopko even on private label consumables. The only real cross I was was the same registers and same sale signs. I did notice the Pamida had a pharmacy and that little corner was where 80% of the store's customers were.

'storewanderer'

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