Pre-Merger Kmart and Sears

Prior to the Kmart-Sears merger, both companies had glaring failures. Having been two of the oldest national retailer’s, the largest problem they shared was failure to stay current with the changes in trends throughout the years which was ultimately leading to their swift demise. Kmart was successful as a low-cost clothing and home-goods retailer, however once competitors such as Wal-mart and Target entered the game with similar quality products and the same low prices, Kmart took a large hit. In the 1990’s Kmart began opening a variety of ‘Super Kmarts’ that incorporated a larger grocery department that included fresh produce to compete with Wal-mart. In the end, the food retailing strategy was deemed a failure. In January of 2002, Kmart filed for bankruptcy protection after several of their suppliers began withholding deliveries and demanding cash from the retailer (Davies, James, Schindelheim & Valenti, 2002). Edward Lambert gained control of Kmart which lead to an increase in stock value based on Lambert’s previous successes. Kmart stores began closing in regions that were deemed the most unprofitable, and a focus was put on urban areas that were not in Wal-Mart dominant regions (Snavely, 2003) Sears battled similar problems especially in terms of staying current and competitive to large big-box retailers like Wal-Mart. Due to it’s historic image of quality goods and regular pricing, it was becoming difficult to draw in customers even with changes made in store. Just prior to the merger, Sears CEO Alan Lacy began a concept known as ‘Sears Grand’, which was an attempt at freeing Sears from it’s image of a mall based, appliance and hardware retailer, to a free-standing general merchandise store. The goal was to reduce the emphasis on their products that they were best known for, such as Kenmore appliances and Craftsman tools, and make an inviting one-stop shop (Yue, 2003). The concept was tested at some of their smaller stores, unattached from malls with great success at the few test locations (Yerak, 2004). Before the concept could be perfected and expanded, the merger with Kmart was completed and Edward Lampert took control of the changes.
Post Merger Sears Holdings The merger of Kmart and Sears was good in theory due to their complementing problems. Sears had the quality products that it has been historically known for, Kmart had the low prices, everyday products, as well as the ideal off-the-mall locations where the customers were more likely to be reached. Together they could blend their two distinct cultures to make a convenience driven, consumer friendly, market competitive department store . Before the merge was complete there was already some doubt in the air. As mentioned above, Sears had experimented with increasing their off-mall presence with Sears Grand. The opportunity had a lot of potential success as seen in initial trials, but the chance was not taken advantage of which has been a big contributor to the downfall (Bhatnagar, 2004). In 2010, five years after the completion of the merger, sales continued to decline and competitors such as Wal-Mart, Target, and Macy’s continued to grow. Lampert, who overall engineered the merger, had made plans and promises to increase sales through online shopping and mobile apps; however in 2010 the company is still a primarily physical retailer with poor locations and unkempt buildings (Clifford, 2010). The decline since the merger has been slow and steady, and Lampert has continually been losing millions per year through failed attempts at saving Sears holdings (La Roche, 2014). Overall, the competition is stiff and changes were made too late to make an impact and stay relevant.
Office Depot and OfficeMax Merger Prior to the merger both Office Depot and OfficeMax were slowly losing sales to their competitors. Staples was the number one seller of office supplies, followed by Office Depot, and OfficeMax falling behind at number three. On top of the competition in their direct field, all office supply companies were taking hits from companies such as Wal-Mart and Amazon who were able to offer all the same kinds of products (and more) often at a more competitive price. By the end of 2012, both Office Depot and OfficeMax had reported an overall decline in sales from the previous year (7% and 2.8% respectively), and their fourth quarter sales report which is typically the best for that industry was also bleak. In order to compete and stay alive in the industry, a merger was the only option (Malcolm, 2013). The merger was announced in February of 2013 which amounted in support from shareholders as share prices for both companies to increase over 20% (Isidore, 2013). By November the merger was completed and resulted in Office Depot, Inc. Although nothing was released prior to the merge, store closings were iminent. In May of 2014 it was announced that 400 stores locations would be closing to reduce overlap and cut down on unnecessary operating costs. This has been a strategy by several companies in the past several years who have an abundance of stores in specific regions. Office Depot Inc. CEO issued a statement following the announcement, “One of our 2014 critical priorities is to improve our store footprint in North America. The overlapping retail footprint resulting from the merger provides us with a unique opportunity to consolidate” (Timberlake, 2014). In the past year following completion, Office Depot Inc. has gained the largest market share control (35.8%) surpassing Staples Inc. by 1% (Diment, 2014).
Similarities and Differences The largest similarity between Sears Holding and Office Depot Inc. would be that they both went through a merger to stay competitive in their respective markets. Wal-Mart, in all it’s big-box glory, is a shared competitor between the businesses that grew at an amazing rate and gained a lot of popularity for it’s low prices and ubiquitousness. That is right about where the similarities end. Office Depot and OfficeMax were on a downward slope but not entirely in the red such as Sears and Kmart when a merger was decided. Kmart had just been saved from bankruptcy by Lampert when he decided that a failing Sears would be a good addition. The changes that Lacy of Sears and Lampert of Kmart wanted to make independently as well as mutually were great and possibly business saving had they been done in a timely manner and not after the competitors were booming. Sears Holdings was also in a poor position due to the sheer number of competitors they had based on the number of market they were dabbling in. Clothing, home-goods, appliances, tools, there was (and is) no realistic way they can compete against Wal-mart, Target, Macy’s, Home Depot, Lowe’s and other large retailers.
The Office Depot Inc. merger was acted on quickly after sales began to decline at a rate too drastic to sustain. Their number of competitors were also distinctly lower especially give the fact that Office Depot and OfficeMax were direct competitors of each other (having the 2nd and 3rd largest market share control respectively in the office supply industry). Larger all around retailers such as Wal-Mart and Amazon may still be a threat for convenience shoppers, but overall they have a much better chance at survival with combined forces.
Images of Change The three images of change I chose are director, caretaker, and interpreter. The director image of change is based around management as a control and that outcomes of change are achievable through a step process. Overall a successful manager as a director has an idea in mind, follows the steps necessary to reach the intended outcomes. This image was very clear in the case of Office Depot Inc. as the change to be implemented was merging with their competitor OfficeMax to be more effective in their industry which is exactly what happened. However in the case of Sears Holding, this image was not clear which is contributing to the failure. The original plan of merging two complementing companies to create a store that consumers wanted may have seemed easy to achieve step wise, however it has yet to be done. At this point the problem has changed from having the right products to presenting it well enough to gain customers. The caretaker image is still based around management having control except the influence the manager has on the outcome is severely hindered by a variety of internal and external forces. A manager as a caretaker may have an idea in mind and take steps towards achieving that outcome, however it the practices or changes being implemented create nothing but unintended outcomes. In the case of Sears Holding, the intention was to merge two companies and share pieces of each culture; Kmarts low price appeal and Sears high quality; to mimic their competitors. Although the merge has technically been achieved the cultures have not blended and they have failed to create a new item that is appealing enough to draw consumers away from Wal-Mart and the like. The interpreter image is not focused on controlling, but shaping an organization through creating meaning for other organizational members. In every organization there are going to be competing meanings so in this image there are likely to be both intended and unintended outcomes. When sales first started declining for Office Depot the first ideas put on the table to remain competitive were about what they could do to attract more customers. Promotions, sales, new products, enter new markets? After sales began declining drastically instead of trying to compete, the problem was repackaged and brought new meaning which lead to a merge. Not only would there be expansion for the company, but the their second largest competitor would now be eliminated. The new Office Depot Inc. is now thriving against Staples, however they will be having to close stores due to retail overlap which wasn’t necessarily intended. During the Kmart-Sears merger, a director image would have been best to facilitate the changes. The goals of the merger were seemingly well established, however the necessary steps and plan to reach these goal were vague and lacking follow through. It was a bold strategy to take two companies that were already declining in the market, and although success was unlikely overall, the opportunity would have been greater with a strong directing figure. The Office Depot-OfficeMax merger has proven to be very successful with a director/caretaker combination of images. The goals were to create a stronger company to best compete within the current market through merging two of the strongest competitors. The plan was clear, the appropriate steps were established, and the desired outcome was achieved. Both companies were well established as office supply companies and there were minimal changes to be made in the culture of the actual working environment which is where the coach image comes into play. After the creation of Office Depot Inc., it came down to training to uniform the goals, values, and skills required by the organization. References
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