Kmart and Sears Merger Essay Example for Free

Kmart and Sears Merger EssayKmart had been established in 1962 by its parent companion S. S. Kresge as a deductive reasoning department store offering the most variety of goods at the worst prices. Un- like Sears, the company chose not to locate in large shopping malls but to establish its tax deduction stores in highly visible corner locations. During the 1960s, 70s, and 80s, Kmart prospered. Retail formats in operation Kmart is a chain of discount stores that are usually vindicate standing or fit(p) in a strip malls. loose Kmart signals a different kind of Kmart. These stores are life-sizeger, brighter and offer big savings, big value, big selection and big whatsis.Big Kmart stores are designed to increase store sales by increasing the frequency of customer visits. The format focuses on three distinct businesses home fashions, childrens apparel and consumables and features an expanded food domain known as the Pantry. Kmart Super Center is a chain of hypermarke ts that carry everything a unvarying Kmart carries, but also down a full grocery section with meat and poultry, baked goods, a delicatessen, garden produce, and fresh seafood. Most Kmart Super Centers operate 24-hours a day and offer special services.In 1999 Kmart began offering a dial-up internet service called BlueLight, which was eventually spun off as an independent company. BlueLight was initially free and supported by banner ads. BlueLight dropped the free service in February 2001 and was reacquired by Kmart in July 2001. In 2002 unify Online, which also owns NetZero and Juno, bought the BlueLight service after Kmart filed for bankruptcy. In August 2006, Bluelight dropped the banners. As of August 2006, the service costs $14. 95 a month and has around 165,000 subscribers. Promotional Pricing modelPromotional pricing had always been the persuasiveness at Kmart. Offering a starting timeer price temporarily in order to enhance the intensity level of product sales efforts to cost sensitive consumer. In 1990, Wal-Mart overtook Kmart in sales, they tried to wean the company planetary from this dodge. Kmart cut process on 38,000 items and promoted the with expensive television commercials, which failed to lure younger shoppers. Then Wal-Mart countered by employ its greater efficiency and economies of scale 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 prior to 2001, company was making continues losses, in order to understand scenario we first analyze the period from 1995 to 1998. Here, Kmart started making any(prenominal) profit. And the second part from the year 1998 to 2002, where they actually went bankrupts. In 1995, the firm suffered a huge loss of $571 million. This was because of the non-performance of 127 multinational stores. It was in the same year that COGS as a percentage of sales were too high as 78%. Operating disbursals as a percentage was in pro portion 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 forethought decided to do away with the non preforming stores and thereby closed all its international stores and started four reinvigorated 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 increase drastically compared to increase in sales. Sales in 1999 change magnitude by 6. 26%, however COGS change magnitude by 12. 23%.Thus, there was a study decrease in the grow profit from 27% of sales to 21% of sales. This was the beginning of the down ensconce of Kmart. From here on, COGS kept on increasing. In 2002 COG reached 85%, thus gross margin reduced from 21% in 1999 to 14% in 2002. During the same time, Kmarts operational efficiency too decreased and i t increased from 18% in the year 1999 to 21% in 2002. Thus, increase in the COGS, lowering 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, position, Kohls, and J.C. Penney, with secondary competitors in certain categories. Wal-Mart Wal-Mart followed the lower cost competitive dodge of cost leadership. According to our textbook cost leadership aims at the broad mass market and requires economical scale facilities, cost reductions, cost and overhead control avoids marginal customers, cost minimization in RD, service, sales force and advertising. Therefore Wal-Mart could get following benefits this strategy provided defense against competitors, provides a barrier to entry for new competitors and generate increased market share.Wal-Mart managed to maintain everyday low prices and achieve highest sales in the industry. It should be noted that Wal-Marts 2005 rev enues 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 purpose. Wal-Marts technical edge is in its logistics, distribution, and inventory control helped it reduce cost and offer customers product cheaper than its competitors. Moreover it could benefit from economies of scale.Wal-Mart also used specialisation focus strategy by creating a product and service quaint to customers, according 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 macrocosm offered something special. Wal-Mart achieved this strategy by offering unique warranties and brand images. Wal-Mart customers believed they were being provided with something that they cannot find at any of the stores competitors. Wall-marts value chain worked in following wayVendors, Wal-Marts suppliers delivered products to Wal-Marts distr ibution center or directly to atomic number 53 of the stores. Wal-Mart was able to bargain for the lowest possible price because of the high volume of sales. Therefore, Wal-Mart could pass this savings to its customers. subsequently 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 less 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 backbone elements of Wal-Mart value chain. Overall Wal-Marts competitive advantage over its competitors was efficient supply chain wariness and lower prices achieved through maintaining low costs. Sears Sears, w ith the second-highest annual sales, had a sinewy position in hard goods, much(prenominal) as home appliances and tools. Around 40% of all major home appliance sales continued to be controlled by Sears.Nevertheless, Sears was struggling with slumping sales as customers dour from Sears mall stores to stand-alone, big-box retailers, such as Lowes and Home Depot, to buy their hard goods. Sears main competitive hurt was its store locations. Sears has been too slow to expand away from mall locations, industry analysts said. As Sears Chairman Alan netted said Our service and products are as good as our competitors but theyre not where our customers are. betoken Target was third in sales but second in profits, behind Wal-Mart.It used differentiation strategy and tried to offer customers quality products and had distinguished itself as a mathematical productr of stylish upscale products. Targets mission statement focused on great guest service, clean stores and speedy checkouts. Al ong with Wal-Mart, Target had flourished to such an extent that Dayton-Hudson, its parent company, had changed its corporate 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 creates value for its customers.Kohls, and J. C. Penney some(prenominal) Kohls and J. C. Penney emphasized on soft goods, such as c dopehing and related items. They both chose differentiation strategy. Kohls concentrated on selling both private and exclusive brands which were only 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 marketing expense of these brands. Keeping this in mind, Kohls has shifted its merchandise gradually towards this section of merchandise.In 2004, Kohls carried 25% in Private and Exclusive Brands, and this figure 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 oftentimes, to differentiate line mixes according to geographic preferences, and to establish a shelf never empty of products the consumer desires.J. C Penney targeted moderate income customs, mainly women who as company administrator said that were with, too little time, too little money, and two little kids. Kmart versus Competitors Kmarts main worry was that it did not have clearly defined competitive strategy. In 2001, Kmart proclaimed a new retail strategy that included less advertising, fewer advertised specials, and lower daily prices on many items. 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 mown the ? nancial position of Kmart Corporation. The Kmart assault on the Wal-Mart image as the low-price leader failed, and Kmart was left(p) 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 poor supply chain management, often popular products would be out of stock, in some cases stored in trailors outside of the stores. Kmart was not favored 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 pursue differentiation strategy Kmart updated and enlarged the stores, added name brands, however this was not successful either, acquis itions all performed poorly posting minimal net income or losses and distracted management from kernel 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.