By  on November 19, 2004

NEW YORK — When it comes to the future of Kmart’s and Sears’ combined roster of apparel brands, the whole is anticipated to be greater than the sum of its parts.

That’s because the deal spells a way to quickly offer consumers a broader array of apparel labels under one roof, plus the potential for a more exciting shopping environment and a higher quotient of convenience, observers said Thursday, the day after Kmart Holding Corp. announced plans to buy Sears, Roebuck & Co. for $11 billion.

“To be able to offer Martha Stewart and Lands’ End under one roof is a particularly powerful combination,” said Paul Nunes, executive research fellow at the Accenture Institute For High Performance Business.

The expansion of the apparel brand offerings at Sears, coupled with the chain’s eventual extension to off-the-mall locations once occupied by Kmart, will effectively create a shopping atmosphere like people found in its department stores in years past, Nunes observed. Factor in the addition of Lands’ End to Kmart’s offerings, and the availability of those apparel labels across approximately 3,500 locations will stir a sense of ubiquity, strengthening the presence of individual brands, such as Jaclyn Smith, Thalia Sodi, Joe Boxer and Sesame Street, he projected.

Whether such apparel assortments will create a strong enough tide to raise the fortunes of two flagging retail ships remains to be seen, however, cautioned Marc Gobe, president and chief executive officer at brand-image creation firm desgrippes/gobe. “The only thing exciting is Martha Stewart inside Kmart and Lands’ End inside Sears.”

While describing the merger as a brilliant strategy for survival in the battle with Wal-Mart, he nonetheless noted: “What we’re seeing is two of the worst brands in the U.S. merging with each other — two brands that have absolutely zero meaning in the minds of people.”

Gobe, for one, believes the combined retailer’s best bet in the war with Wal-Mart is to position the Sears and Kmart stores in a unique manner — largely through differentiated brand assortments — as Target has done with its playful yet sophisticated store image and roster of proprietary designer brands from Isaac Mizrahi to Liz Lange, Todd Oldham and Philippe Starck.Indeed, Sears Holdings would have the cash to invest in brands. As Wall Street searched for insights on the merger, Kmart released third-quarter results that showed a net income gain of $553 million, compared with a loss of $23 million in the prior year, on sales that fell 13.7 percent to $4.39 billion from $5.09 billion.

But the standout was Kmart’s balance sheet. Long-term debt, which includes mortgages due within a year, stood at $4 million at the end of the period ended Oct. 27, while cash and cash equivalents came in at $2.6 billion.

“For the time being, based on their statements, we’re going to approach everything separately because that’s how they’ve indicated they plan to run the businesses,” said Robert Skinner, president and chief operating officer, Kellwood Co. The vendor has its Sag Harbor, Koret and Briggs New York in Sears and sells private label intimate apparel to Kmart.

Skinner said the merger was “smart” given that it opens up the door to better use of the chains’ real estate. “If they centralize some of their back offices and it makes it more efficient for us to sell them, obviously that would be a positive for them and a positive for us,” he said.

Terri Meichner, senior vice president of the Avenue Body division of The Avenue and a former vice president and divisional merchandise manager of intimate apparel at Kmart, said: “I think their product looks better and they have the capability of building brands. They’ve done it in the past with certain brands like Martha Stewart and Sesame Street, and they did a great job with Joe Boxer. I would say building brands was Kmart’s forte when I was there [seven years ago].

Gwen Widell, executive vice president of merchandising for Wacoal intimates at Wacoal America, remarked, “They’ll be competitive if they each find their niche, but they’ll have to decide which classifications to go after. The Sears name doesn’t have a fashion connotation. Sears would not be the place a teen would want to buy a pair of jeans. It’s a place where dad buys a hammer.”On the real estate front, one observer questioned how viable the merged retailer would be in the market. Charles Kleman, chief financial officer and chief operating officer at specialty retailer Chico’s, said, “It sounds like Sears wants to move their stores off-site to Kmart. Sears is so mall based they’re stuck with an anchor. Kmart is strip-center based, and that’s where people like to shop. But if that’s the case, they would have to compete with Wal-Mart around the corner. I don’t know how they can do that. They’ve got to be as quick and smart as Wal-Mart, and Sears in particular has never been known for speed or change.”

As for the consumer’s perception of Sears and Kmart, Kleman, said: “It’s sort of a story of an old dinosaur and a floundering discounter. They’ve got to reinvent themselves. Maybe both can be better through cost savings. If they do something blended, maybe it will work. It’s a big marriage, but definitely a strange marriage.”

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