Kmart + Sears: Acquisition or Collision?

When Kmart Holding Corporation announced its intentions to acquire Sears, Roebuck and Company last month, business publications across the country were full of reports on the real estate implications, the effects on other retailers, Wall Street's reaction and the sheer boldness of the move. Not much has been said about whether it makes sense from a material handling logistics perspective. For that, MHM went to two sources to provide you with a pure academic analysis and a practical "been there" take on the acquisition.

First, the view from the classroom. Tom Speh is the Rees Distinguished Professor of Distribution at Miami University, Oxford, Ohio, and past president of the Council of Logistics Management. Speh doesn't see the synergies he thinks are necessary to make this kind of acquisition work.

"I don't think either company has a well defined mission of where they fit," he says. "It's all about cash generation. It wasn't like a merger of Kraft and Nabisco where you take existing facilities and move more product through them to reach the same locations — not unless they do a lot of co-mingling of products at each of the different stores. Unless they do that, I don't see a gigantic advantage."

The new entity is bound to experiment by pushing Martha Stewart brand products to Sears locations and Kenmore appliances to Kmart stores. They'll learn which brands work in which retail environments. But will Kenmore appliances physically fit in the same stores where consumers have shopped for groceries? Will one line of products give way to the other?

In addition to the art of material handling, the new Sears Holdings Corporation will have to master the science. Done right, says Speh, this new entity could achieve big savings in logistics administrative costs. For example, it could reduce overhead in MIS or demand planning and it could gain more transportation buying clout. And if it sells off more real estate it will earn more money to invest in new material handling technology. Up to now, Wal-Mart and Target have gotten most of the attention in the retail world for their adoption of radio frequency identification (RFID). Sears and Kmart would be relative newcomers to that game. But Jim Tompkins, president of the Raleigh, North Carolina based logistics consulting firm of Tompkins-Associates, sees a half-full glass for this new enterprise. Tompkins got familiar with the Kmart side of the business when the retailer bought a Toys R Us distribution center which was designed and implemented by Tompkins.

"That gave us the opportunity to see where they were technologically and understand what they were doing and how things work," Tompkins explains. "This deal will allow them to spend their technology money once but get the benefit over a higher volume. It will be easier for the combined entities to adopt technology than it was for the separate entities."

Will we soon hear about a new mandate from Sears Holdings that its suppliers adopt RFID technology? MHM contacted Sears for a comment, but a spokesperson said they won't have anything to say until the acquisition is approved by shareholders and regulators - probably not until late March. Tompkins' opinion? Don't hold your breath.

"I don't think RFID will be early on," he says. "These companies don't represent a typical culture accommodation because they're going to be smashed together. You have two broken businesses. By combining them they'll come up with a whole new business, and I think it will work. Rather than being a network rationalization, it will be a re-doing and they'll create a new business." —

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