Sears Brands Go Into Kmart But Not Vice Versa
By George Anderson
It was widely expected when Kmart and Sears merged that the combined company would take the best each chain had to offer and bring it together under one roof to create more compelling
reasons for shoppers to spend their hard-earned cash in the retailer’s stores.
As a piece in the Chicago Tribune points out, nine months after the merger was finalized, one portion of the expected scenario has taken place. Today many popular once
proprietary Sears brands are being sold in Kmart stores. Surprisingly to many, however, the most popular brands sold in Kmart, most notably the Martha Stewart Everday line, still
are not available to shoppers in any of Sears various store formats.
“We don’t have any Kmart brands at Sears at this point,” said Chris Brathwaite, a spokesperson for Sears Holdings. “We’re currently looking at the best way to leverage the brands
of both companies, and that work continues right now.”
The holdup on the Martha Stewart front, according to the Trib report, is that neither Edward Lampert, chairman of Sears Holdings, or Ms. Stewart have been willing to give
in on their terms of a deal.
Still, other popular Kmart brands have yet to find their way into Sears stores. Route 66, Joe Boxer and the Jaclyn Smith line of women’s apparel are still being sold exclusively
in Kmart.
Some believe the absence of Kmart brands has been particularly confusing to long term shoppers of the chain who enter stores converted into the Sears Essential format. Instead
of finding Martha Stewart, they now find Martex.
Moderator’s Comment: Is the absence of popular Kmart brands in Sears stores keeping them from achieving greater results?
What impact have Sears brands in Kmart stores had on those operations? –
George Anderson – Moderator
No one really knows the exact answer to the posed questions. I’m inclined to think Sears would be benefited some by adding Martha Stewart’s line. But what a grand experience it would be to observe “Miss Marthy” and “Easy-Rider Eddie” negotiating over what it takes to get her line into Sears stores too. Thus, “To be or not to be, that is the question.”
All these big, long words and nothing directly hitting the point. Sears doesn’t need Kmart products to draw in customers. Kmart does. And I agree, Martha won’t be able to get off the Kmart ship fast enough as soon as her contract runs out, so why should Sears bother?
Determining the proper mix by identifying the most popular items for each retailer and then creating a deal that makes sense to get the items into the other store is backwards. The management needs to determine the customer base of each store, the amount of overlap now, and the amount of overlap desired. Given the current and/or desired customer based of the individual or combined stores, which products have the most demand? If commingling of Sears and Kmart brands and strategies is based upon which items have sold the best for one store and which items can be expanded for the best deal, the strategy will fail. The combined Sears/Kmart venture is the perfect occasion for reinventing itself based upon consumer demand. If they don’t, the new joint venture will be no more successful than either individual venture has been.
Expensive licenses sometimes ruin profitability, in spite of increased sales. Sales margins are not infinite. If Martha’s demand is for 14% of sales, similar to some movie-related license terms, it’s a lot harder for Sears to make money than if the license is for 5%. It’s also not clear that Kmart brands have a middle-class perceived quality level, compared to Sears brands. It won’t help Sears to downscale itself. I’m sure that the recently appointed (November) head of Sears apparel, Ms. Schultz, who was already the head of Kmart apparel, and comes from The Gap, has considered these issues. Kmart apparel sales have outpaced the rest of Kmart, so if she can turn around Sears apparel, she will certainly be a hero twice.
I think this is further evidence that Sears/Kmart does not have long term plans of staying in retail. This will probably be better for Martha Stewart in the long run as well. Her name has been tarnished enough. If Sears or Martha had any interest in furthering their relationship, the deal would already be done. I’m sure she is looking forward to the day when her products are taken out of Kmarts and moved to classier, higher volume stores such as Wal-Mart, Home Depot, Costco and Target.
At this point, it doesn’t matter if Sears is in Kmart or if Kmart is in Sears. Perhaps in math equations, multiplying two negatives will equal a positive, but not in retail. Sears-Kmart is a bowling shoe in a room full of Gucci’s. There isn’t much more that can be done to move them up in class.
This seems to be evidence that Sears is “propping up” Kmart. Sears does not need Kmart, but Kmart needs Sears. (Sears only needs Kmart’s real estate locations.) I see this as a very clear indication that Sears strengths continue to be in hardlines. The fact that Kmart is able to improve sales by introducing Sears brands and that Sears increases sales by decreasing floor space formerly allocated to clothing is proof that Sears needs to change its market focus.
Sears needs to eliminate its unprofitable clothing, shoes, and jewelry departments. Next, Sears should beef up hardlines — especially in lawn & garden, appliances, home improvement, consumer electronics, DVD’s, CD’s and high tech toys. If it were to do this, Sears could become a hardlines category killer. In the meantime, Kmart would be slowly eliminated, as its premium locations are converted into shiny new Sears hardline stores.
If Sears wants to kill off Kmart, it could always merge with Circuit City after Kmart has been assimilated. I think Sears and Circuit City have more to offer each other in terms of synergies. Imagine it — a new chain containing the consumer electronics/media products of Circuit City along with the hardlines of Sears! Watch out Best Buy and Home Depot!
Also, if Martha Stewart is planning to pull out of Sears/Kmart, it would present the retailer a golden opportunity and a legitimate excuse to exit the softlines market.
Kmart lines have the perception of being inexpensive but of marginal quality. I fail to see how adding these lines to Sears will do much to enhance the image of an ailing company.