Shop Smart, Shop S-Mart

[LegendKiller]

Yes ladies and gentlemen. There will now be an S-Mart, with Ash working housewares I am sure. K-Mart sells guns too...hmmm...wonder if they sell the Boomstick brand!?


http://www.cnn.com/money/2004/11/17/news/fortune500/sears_kmart/index.htm?cnn=yes

[DaFunkyUnit]

so does that mean i should sign up for a Sears card, now?

:P

[sizemic1]

Don't you make the mods move this to entertainment :)

http://www.lemonizer.com/upload/uploadsOctober/armydk86.jpg

[nickel]

This is a terrible move by Sears. K-mart sucks. All they had going for them was the Martha Stewart lines and I'll bet even those sales have plummeted.
The owner(s) of the K-mart corp. scored big talking Sears into this deal.

[ialsohaveadream]

<rain man>
K-Mart sucks
</rain man>

[ray]

This is a terrible move by Sears. K-mart sucks.

Both K-Mart and Sears Roebuck have had their financial difficulties the past couple years. The reason why they were tanking was because they could no longer compete with powerhouses like Walmart, Costco, Sam's Club, etc.

I think that this is a good move by Sears. Not only will they be able to expand their products and services offered, maybe they will take advantage of store locations etc.

[faither]

K-Mart isn't just about selling crap anymore. Since reorganizing through bankruptcy, it's stock has soared. A great deal of its value stems from real estate holdings. Here's a look at what the stock has done...

52-week low and high, $22 and $107, respectively. Up to $119 at one point today.

http://chart.bigcharts.com/custom/cnnmoney-com/big.chart?ClientID=44711&pg=qu&osymb=KMRT&symb=&sid=1436229&time=1yr&freq=1dy&maval=60&uf=0&lf=1&type=256&mocktick=1&symbtype=0&country=US&doChartIV=0&style=1840&size=8&rand=6483.jpg

[BrewMaster]

This is a terrible move by Sears. K-mart sucks. All they had going for them was the Martha Stewart lines and I'll bet even those sales have plummeted.
The owner(s) of the K-mart corp. scored big talking Sears into this deal.

actually, I heard the other day on NPR that sales of the Marth Stewart line are up despite her legal troubles.

The now company will be called Sears Holding Company. It's a good financial decision for both companies to have combined buying power and lower overhead. K-Mart had been closing stores in an effort to slim down to only profitable stores. Great business move IMHO.

[LegendKiller]

Given that the vast majority of mergers actually fail to produce any investor benefit I fail to see why this is a "smart" move. The synergies realized by companies are really inflated (as I am finding out by watching the merging of 2 companies into 1 timeshare group).

Neither companies offers the other anything special. Purchasing for clothing lines are different since they have different lines, K-mart doesn't sell Dockers or Haggar, Sears does.

One thing they tout is Craftsman being carried in K-Mart. BFD?!? If somebody is going to pay the extra dough for Craftsman they are going to buy it at sears regardless. People who buy tools at K-Mart don't want expensive lifetime warranties, they want cheap crap.

People buying jeans at K-mart look for wranglers, not Apostrophe which I am sure will be more expensive.

Even if they actually do sell some of this crossed crap, all it will do is cannibalize sales from the other, in the end creating one big screwed up company.

Sears has gone down the wrong path for a while now, constantly missing trends in every area, not streamlining their distribution, sales sites, or management. They sold off their CC biz, which was their biggest money maker

I can't believe Businessweek is saying that this guy could be the next Warren Buffet...I call BS on that one. It's nothing more than an over-inflated stock.


LK

[WhiskeyPapa]

K-Mart isn't just about selling crap anymore. Since reorganizing through bankruptcy, it's stock has soared. A great deal of its value stems from real estate holdings.You got that right. Neither of these retailers is all about selling crap. Sears' most profitable division is the credit department. Sears is basically a finance company that happens to have some stuff for sale.

[nickel]

sounds like they might be turning the K-mart stores into Sears outlets to sell their very successful Whirlpool line.


Suppliers Worry About Kmart-Sears Merger

DES MOINES, Iowa - Wal-Mart Stores Inc. is widely referred to among its suppliers as the 800-pound gorilla. What the giant retailer wants, it usually gets.

Now, many manufacturers must be wondering whether Kmart Holding Corp.'s pending acquisition of Sears, Roebuck & Co. will create a second behemoth that demands lower prices for their goods or, worse, drops them altogether.

In announcing their marriage intentions Wednesday, the two retailers said they expect to save $300 million a year through "improved merchandising and non-merchandising, purchasing scale as well as improved supply chain, administrative and other operational efficiencies."

For suppliers, the key words are "purchasing scale" and "improved supply chain." Those goals might translate into such buying power that to retain Sears/Kmart's business, manufacturers may be forced to go overseas to make products at a profit.

"When they say they need a $49 price point for an electric drill, people have to come up with ways to do it," said Bill Drumm, president of Establish/Herbert W. Davis, a supply-chain consultant in Fort Lee, N.J. Significant U.S. manufacturing went offshore in order to meet the prices that Wal-Mart dictated, he said.

Moreover, whereas several companies may be making drills for Sears and Kmart now, in the future the combined company may seek a single source.

"Say today Sears has three suppliers of (something) and Kmart has three. Combining them you don't get six," Drumm said. "If I was No. 4 or 5, I would be concerned. If I was one of the top three I'd be thrilled."

Indeed, Sears' biggest supplier of major appliances, Whirlpool Corp., believes the merger "will be a plus for us, absolutely," said spokesman Steve Duthie.

He expects Sears will convert more Kmarts into Sears outlets, which means more locations where customers can buy Kenmore washers, driers and other appliances that Whirlpool makes under Sears' house brand.

Asked whether Whirlpool expects the combined retailer to exact cheaper prices from it, Duthie replied, "We don't foresee that at all." He noted that Whirlpool has announced plans to increase its prices to retailers between 5 percent and 10 percent next year to reflect higher costs of steel and other raw materials.

Sears now buys from more than 10,000 suppliers. The number of Kmart suppliers — and their overlap with Sears — couldn't be determined.

http://news.yahoo.com/news?tmpl=story&u=/ap/20041117/ap_on_bi_ge/kmart_sears_suppliers_1

------------------------------------------------------

and to quote the article posted by LK


"This is more a real estate deal than anything else. I would be very surprised if Kmart doesn't completely go away in the two to three years, or become something completely different," Whalin said

so then i guess we'll say goodbye to K-mart crap, and Martha

[LegendKiller]

You got that right. Neither of these retailers is all about selling crap. Sears' most profitable division is the credit department. Sears is basically a finance company that happens to have some stuff for sale.


*was* their credit department...


http://www.businessweek.com/investor/content/jul2003/pi20030716_1420_pi036.htm


They sold it off, got pounded by the agencies. As I said, credit was a huge portion of revenues and a larger portion as a % of profits.


LK

[bachviet]

so does that mean i should sign up for a Sears card, now?

:P
You mean throw away the Sears CC and get the K-Mart one.

[BrewMaster]

Given that the vast majority of mergers actually fail to produce any investor benefit I fail to see why this is a "smart" move.

well, given that the alternative is both companies slipping into permanent bankruptcy and going out of business completely, I'd say it's a smart move. i would bet that their product lines will begin to converge. sure, they will have some differences, but I imagine they will be very slight.

[LegendKiller]

well, given that the alternative is both companies slipping into permanent bankruptcy and going out of business completely, I'd say it's a smart move. i would bet that their product lines will begin to converge. sure, they will have some differences, but I imagine they will be very slight.


No, its a pisspoor move by companies that are desperate. If one or the other company is having problems it should be up to the *investor* to decide whether they want to diversify or just divest from the company, forcing 2 crapass companies to gether just produces one big eff'ed up crapass company.

Witness AOL Time Warner


LK

[whitak24]

i'm with LK - mergers often look great on paper, but the synergies don't usually end up being as high as expected. the problem is that, from a management standpoint, there are always great theoretical benefits to the merger. if you're looking at rising costs and falling profits, it's hard to find long-term solutions. and chasing the savings from synergies that are "supposed" to develop from a merger (and might actually occur) is easier than really fundamentally reorganizing your business.

i guess my point is that i understand why companies pursue mergers. it makes sense on paper. but in practice, it's rarely as good as advertised.

[DarkFury]

Heh...

<Drago>

Wal-Mart will break you...

</Drago>

[LegendKiller]

i'm with LK - mergers often look great on paper, but the synergies don't usually end up being as high as expected. the problem is that, from a management standpoint, there are always great theoretical benefits to the merger. if you're looking at rising costs and falling profits, it's hard to find long-term solutions. and chasing the savings from synergies that are "supposed" to develop from a merger (and might actually occur) is easier than really fundamentally reorganizing your business.

i guess my point is that i understand why companies pursue mergers. it makes sense on paper. but in practice, it's rarely as good as advertised.



:stupid: :stupid:

[Maarchk]

*was* their credit department...

http://www.businessweek.com/investor/content/jul2003/pi20030716_1420_pi036.htm

They sold it off, got pounded by the agencies. As I said, credit was a huge portion of revenues and a larger portion as a % of profits.

LK

LK, what do you do for a living? you always seem to be up to date on the political, business, societal happenings of the world with real world examples to back up any thoughts or points you make. I mean i think i remember that you were a history major but your knowledge on current events and business is very impressive. You aren't the oracle by change are you?

[LegendKiller]

LK, what do you do for a living? you always seem to be up to date on the political, business, societal happenings of the world with real world examples to back up any thoughts or points you make. I mean i think i remember that you were a history major but your knowledge on current events and business is very impressive. You aren't the oracle by change are you?



I read Business week every week, Forbes every month, Popular Science every month, read Financial Times when I can, read Asset Backed Digest every month, visit CNN 3-4 times a day, watch news when I get home, debate with friends on current topics, discuss with my boss current economic happenings, talk with bankers about economic forecasts, and read financial books.

I also try to get a good depth of knowledge in many topics from cars (not just makes, but also mechanical issues), music, movies, but I don't get to in depth. I listen to people a lot and hang with friends that are diverse, mechanics, electricians, carpenters.

One of the biggest things I do is engage friends I *know* won't take offense in good debates. I have a real uber-christian friend that I see every 5mo or so that I always have a good religious debate with. Both of us get our points out, meet at common grounds and discuss each others feelings. I often come out of it wondering how I can improve my outlooks, I have learned a tremendous amount from him.

I am a pretty big info junkie. I may seem like an ass on here sometimes, but I can actually be nice :)

My biggest problem is I am pretty combative when it comes to the finer points and I get a little pissed when it doesn't seem like people are as objective thinking as I try to be. This puts them into a defense mode where they shut down.

Need to realize that not everybody is as logical as me :)


Just kidding...


As far as what I do. I am a financial analyst in the asset backed securitization field, working for Cendant, which is a huge conglomerate of odd companies. I studied psych (doesn't do me too well sometimes), and history in undergrad. mba finance grad. cfa lvl2 now...which reminds me, I need to talk with Merlin....Need his advice for the cfa...



Now I am just rambling...back to work.

[caribiner23]

While many mergers are bad ideas and don't result in increased shareholder value (e.g. AOL Time Warner), I differ with LK's opinion that "the vast majority of mergers actually fail to produce any investor benefit."

I've spent most of my career in the investment banking industry, mostly working for firms that are involved in mergers and acquistions. I would say that more than 50% (a "majority" if I read the political forum here correctly :) ) are very successful. It's just that the really really good ones and really really bad ones get the most press. Many extremely successful mergers and acquistions fly under the radar and don't make the media beyond the announcements that appear in the Wall Street Journal.

If the majority of M&As were unprofitable for shareholders, the shareholders would vote them down more often than they do.

All that said, both Sears and K-Mart have been struggling for years, and this merger makes a lot of sense.

Sears has gone through about a half-dozen image makeovers since 1982, and they still can't get it right. They tried to be a financial services company in the 80s (Discover, Dean Witter, Coldwell Banker) and they failed. They bought other lines (Land's End) and still couldn't get an edge in retail.

K-Mart has been trounced by Wal-Mart and Target for the past 15+ years, and most recently by the likes of Costco, Sam's, Best Buy, Home Depot (pick your favorite "big box").

Both business needed a change for a long time, so I welcome this. I'd rather see them make a go of it than fail.

[LegendKiller]

While many mergers are bad ideas and don't result in increased shareholder value (e.g. AOL Time Warner), I differ with LK's opinion that "the vast majority of mergers actually fail to produce any investor benefit."

I've spent most of my career in the investment banking industry, mostly working for firms that are involved in mergers and acquistions. I would say that more than 50% (a "majority" if I read the political forum here correctly :) ) are very successful. It's just that the really really good ones and really really bad ones get the most press. Many extremely successful mergers and acquistions fly under the radar and don't make the media beyond the announcements that appear in the Wall Street Journal.

If the majority of M&As were unprofitable for shareholders, the shareholders would vote them down more often than they do.

All that said, both Sears and K-Mart have been struggling for years, and this merger makes a lot of sense.

Sears has gone through about a half-dozen image makeovers since 1982, and they still can't get it right. They tried to be a financial services company in the 80s (Discover, Dean Witter, Coldwell Banker) and they failed. They bought other lines (Land's End) and still couldn't get an edge in retail.

K-Mart has been trounced by Wal-Mart and Target for the past 15+ years, and most recently by the likes of Costco, Sam's, Best Buy, Home Depot (pick your favorite "big box").

Both business needed a change for a long time, so I welcome this. I'd rather see them make a go of it than fail.



http://www.corporatefinance.mckinsey.com/_downloads/knowledge/MOF/2004_no10/NEW_merger_synergy_MOF10.pdf


I knew the people who did that study.


There are some facts to why mergers largely fail.


1. Overpayment for acquisition, even 10% can wipe out profits for 3-4 years.

2. Failed due diligence on assets, future of the company, infrastructure issues (exactly what I am going through now)

3. Management does not "get" the differing corporate ideologies, often one is supplanted with the other and then the talent exodus begins (going through that now)

4. Synergies between companies are overstated and projected WAY too high. Only good plans to impliment synergies achieve desired effects.


Working for a massive conglomerate that buys and sells companies left and right, Orbitz and Sotheby's realty purchased in the last year, Jackson Hewitt+Cendant Mortgage+PHH Arval sold in the last year, I can say that the "synergies" created by two seemingly same Timeshare companies offer a whole host of issues. Infrastructure problems is the main one. Companies can spend tens of millions of dollars just to move the companies to a common platform.

Furthermore, what exactly does this do to either company? It creates a limbo company. They aren't a discounter nor are they a mall retailer. They STILL can't compete with Wal Mart in terms of streamlined back office, nor can they compete with Federated in mall locations.

It gives BOTH companies a torn image and an unclear path to follow. The "synergies" are no more than cannibalizing strategies for cross marketing.


Both are STILL locked into old platforms and ways of business and neither are that great at what they do. This creates a big mess, like AOL.

Sorry Caribiner, I think that the myopia common of most big hyped transactions created by M&A departments and banks has created yet another 500lb ailing gorilla.

Your last statement is yet another symptom of a larger problem. People are WAY too optimistic. Who do you think profits from these transactions? Not shareholders. Its bankers like you who convince others of the benefits of the "deal", overpromise and under deliver.

If one of these companies has to die, then let one die and not bring the other down with it, it is as simple as that. I can see the boardroom now.


"Gee, our sales have gone down X% in the last decade, we are f'd. We can't find a niche and we don't know where to go now"


"Hey, why don't we find another fvckup company and merge with them. We will get rich, bankers will get rich, and both fvckup companies can create one big FUBAR with no direction, no niche, and one that spends 100's of millions on infrastructure costs, severance pay, and acquisition costs that will take 10 years to recoup, if the company survives that long. But who cares, I am retiring in 2 years"

"Wow, sounds great, I always wanted that yacht in the Caymans...btw, did you buy a new Hummer H2, that thing looks awesome, did you get the Snorkel package, never know when its going to rain 30' in NYC!??"




LK

[ray]

Only time will tell where this merger leads them. None of us are privy to the various synergies that the new management is going to set, but we all know that such synergies will take years before they are actually achieved. Heck, most synergies are long forgotten after a year.

[kei2]

I think they'd benefit from actually changing the store names to SMart. Just the "shop smart, shop s-mart" line makes it gold.

[caribiner23]

LK, I understand your points, but I still disagree with some of them.

BTW, I am not a banker. I said that I work in the investment industry.

[Nija]

i just want to say, i've always hated "synergies". i hate that word.

[nickel]

i just want to say, i've always hated "synergies". i hate that word.
:stupid:

[DarkFury]

sounds like they might be turning the K-mart stores into Sears outlets to sell their very successful Whirlpool line.
Yeah... Sear sells Kenmores (which are re-badged Whirlpools), however other retailers sell the direct Whirlpool items for less than what you would've paid for the Kenmore brand...

I bought both Whirlpool washer/dryer and a refrigerator at Best Buy for less than what Sears sells the equivalent Kenmore brand.

I'm sure that Whirlpool still made it's money either way... but some folks really used to feel more comfortable with Sear's "Kenmore guarantees"...

I know that my parents always had Kenmore products... however I didn't go down that road.

[faither]

I'm also in the securities business and offer no advice but agree with LK's assessment of most mergers. Aside from an ocassional immediate pop in price, typically the only parties who make out in large mergers are lawyers and the bankers who bring the parties together.