For the exclusive use of D. Xiang, 2015.

9-200-044
REV: JANUARY 15, 2002

LISA MEULBROEK

Kmart Inc. and Builders Square
Introduction
In July 1997, Kmart appeared to be nearing a year-long effort to sell its faltering Do-It-Yourself
(DIY) home improvement chain, Builders Square. Leonard Green & Partners, a Los Angeles-based retail buyout firm, had proposed to buy Builders Square (BSQ) and merge it with Hechinger’s, a
Washington, D.C.-based DIY chain that had been a pioneer in the retail home improvement industry.
The newly-formed Builders Square-Hechinger combination would create the nation’s third largest
DIY retailer, and seemed to be one of the few options left to Kmart. Kmart’s CEO, Floyd Hall, had a difficult decision to make: should he move forward with Green’s offer of $10 million for Builders
Square, or should he continue the search in hopes of receiving a higher offer? Green’s offer seemed surprisingly low, even given Builders Square’s recent sub-par performance, yet bidders for Builders
Square had been slow to materialize. Indeed, Kmart’s recent talks concerning a joint venture with
Waban Co.’s HomeBase centers ended when Waban’s management withdrew without explanation.
As the decision neared, Kmart’s options seemed limited and time was short.

Kmart and its Entry into Specialty Retailing
Kmart Corporation, one of the world’s largest mass merchandise retailers, began as the S.S.
Kresge Company in 1912 and by the 1950s it was one of the largest general merchandise retailers in the United States. In 1962, it opened its first Kmart discount store in Detroit. By the late 1970s,
Kmart’s success had attracted new competitors to the discount retailing industry. These new competitors, which included Wal-Mart and Dayton-Hudson’s Target stores, entered the market with more inviting stores that made Kmart’s facilities appear shoddy.