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Byline: Barbara Thau

NEW YORK-Sears and Kmart officially tied the knot last Thursday, but what will the combined $55 billion retail entity morph into?

It's clear that "Sears-Mart" is hitching its fortunes to the off-mall space with Kmart's freestanding real estate and Sears nameplates: the midsized Sears Essentials and supersized Sears Grand formats. But the future of the retailers' business segments -- from Sears' Lands' End catalog to Sears Canada -- remains to be seen.

And if Eddie Lampert -- the investor guru and Kmart chairman who negotiated the merger -- stays true to form, look for him to sell off what he deems superfluous business segments for cash.

The Sears/Kmart union was designed to steamroll each retailer's strategic goals. It enables mall-based Sears, hammered by off-mall juggernauts such as Wal-Mart and Target, to accelerate off-mall expansion with Kmart's 1,500 stores. In turn, Kmart gets a chance to address its Achilles' heel: differentiating itself from the big two mass merchants with Sears' signature house brands, such as Kenmore appliances and Craftsman tools, executives said at the time of the deal.

While Kmart's off-mall locations are viewed as a prime asset, what pieces of the combined business will Lampert deem expendable? Sears Canada and Lands' End, the cataloger Sears acquired in 2002, come to mind.

But despite published reports, Lands' End, the cataloger Sears purchased in 2002, is not for sale, Lampert said.

It's no secret that Lampert is not shy when it comes to shedding assets for cash.

Since July, Lampert has sold off over 70 Kmart stores for a total of about $1 billion. Sears also divested its profit-generating credit operation with Lampert as a major shareholder.

Just this month, Sears Canada named Alan Lacy, chief executive officer of Sears, chairman of the board. There has been speculation that the appointment is a perfunctory measure that portends Sears selling off the 121-unit division.

"Sears owns 54 percent of Sears [Canada] shares. We've received no indication that the company wants to change ownership in Sears Canada," Vincent Powers, a Sears Canada spokesman, told HFN.

"Our policy is not to comment on rumor or speculation about this kind of market activity," a Sears official told HFN.

Sears also operates 818 freestanding franchise stores, as well as the Orchard Supply Hardware and Hardware & Appliances chains, with 245 freestanding stores.

At a shareholders' meeting, Lampert said the merged retailer will announce "top leadership" positions next week, and by the end of April, the structure of the combined company will be outlined. That includes details on the fate of the corporate headquarter staffs, including the merchandising teams.

While Sears Holdings will be located at Sears' headquarters in Hoffman Estates, Ill., the combined company will maintain a "presence" in Kmart's Troy, Mich., offices.

On the merchandising end, the retailer has not decided if it will extend Kmart's Martha Stewart Everyday home brand to Sears, Lampert said, according to the Sears spokesperson. However, if Stewart were to market a line at Sears, it would be different than the Kmart program.

There are signs that the combined entity, with 3,800 stores, will feature a lot more Sears signs than Kmarts. And a number of industry watchers believe Kmart will cease to exist in five years.

"Kmart to us is a dead brand. The sooner they can migrate away from it, the better," said Will Ander, a partner with retail consultancy McMillan Doolittle, noting Sears' stronger brand equity and in-house brands, earlier this month.

At the time the merger was announced last November, Lampert said, "I think the ability to take the Kmart store base and determine [what stores to convert] to the Sears name, and to bring Sears' products into the Kmart stores, is a great opportunity."

Just this month, Kmart set plans to convert approximately 400 Kmart stores to the Sears nameplate over the next three years, and Sears confirmed that the new Sears Essentials midsized concept will likely be the format of those stores.

Sears Essentials will combine convenience items such as pantry goods with trademark Sears categories, including appliances. It will feature a scaled-down mix of all the home products available in Sears' mall-based stores and Sears Grand, its off-mall supersized format that includes food and consumables.

Caption(s): The combined Kmart-Sears will soon reveal itself.
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Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1CANA
Date:Mar 28, 2005
Previous Article:HOME MAKER.

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