By  on November 18, 2004

The vendor community, while caught off guard by news of the deal, were mostly optimistic in assessing the potential of this new retail goliath — even though there were unanswered questions about the retailer’s future.

“I feel more positive about the combination of these two sick puppies than I do negative about it,” said one vendor executive who spoke on the condition of anonymity.

“Nobody has a clue as to what’s going to happen,” said the executive. “Maybe [Edward] Lampert does. Maybe he doesn’t. Both Sears and Kmart are moving into the great unknown.”

There might be plenty of question marks surrounding the future of the company, but some vendors see opportunities to expand their businesses as a result of the merger.

“We don’t do nearly as much with Kmart [as Sears],” said Kellwood Co. chairman and chief executive officer Hal Upbin. “I hope we would start to do more business with Kmart as they start to review the merchandising options.”

Kellwood, with overall annual sales of $2.35 billion, counts Sears as its second- largest customer after J.C. Penney. The deal was a surprise to Upbin.

“It wasn’t on my radar,” he said. “I think it’s smart, though.”

Kellwood was created in 1961 by the merger of 15 independent Sears suppliers and has since expanded its business though a series of acquisitions.

Upbin, a dealmaker himself, said making better use of the two retailers’ real estate is a “prime result” of the merger.

Even if some Kmart stores convert to the Sears banner, Upbin is not expecting either one of the names to go away.

“Is that possible? Anything’s possible,” he said. “I really think they both have a reason to be. I would be really surprised if they didn’t continue the two brands as independent, but blending the best of each.”

Peter Boneparth, ceo of Jones Apparel Group, said Sears was gunning for significant off-the-mall growth. He said it was too early, however, to tell if there was a chance to pick up significant business with Kmart under the new structure.“To the extent that they need branded fashion product, then we feel like we’ll have a real opportunity here,” he said.

Jones has numerous businesses with Sears, including A|Line, which was relaunched exclusively into 450 of the chain’s stores for fall this year. There are also plans to introduce two or three initiatives with Sears next fall, said the ceo.

For his part, Liz Claiborne Inc. chairman and ceo Paul Charron said Lampert’s involvement is a plus.

“I think this is a highly intelligent move by a very sophisticated investor, Eddie Lampert,” said Charron. “This approach provides real opportunities for Sears Holdings that neither Kmart nor Sears had as independent enterprises.”

Charron doesn’t expect the deal to have any immediate affect on Claiborne.

“As far as I’m concerned, this transition suggests no change in the approach we’ll take over the next 12 months,” he said. “Twenty-four to 36 months down the road, who knows? A lot depends on how well we perform at Sears. We have to earn our keep every day.”

Claiborne sells its Curve and First Issue brands exclusively to Sears.

Vendors also said the combination will help the retailers better compete with retail giant Wal-Mart.

“How do you compete with Wal-Mart?” asked Josie Natori, ceo of Natori Co. “Over the years, Sears lost its leadership while Kmart got out of bankruptcy. In my mind, Sears and Kmart are pooling their strengths together to make their businesses stronger. They aren’t consolidating to survive, but to grow.”

Sears and Kmart also have complementary strengths.

“Sears is stronger in hard lines like electronics,” said Abe Chehebar, Accessory Network Group’s chairman and ceo. “Kmart has made tremendous strides in the past two years in its apparel and accessories presentations. We are seeing a Kmart that’s a lot more aggressive insofar as the timing of when they launch new products.”

ANG supplies Kmart with private label handbags, jewelry, headwear and cold weather accessories, as well as licensed children’s and teen merchandise.“I think Sears’ strength in hardlines can be a help to Kmart and Kmart’s strength in softlines can be a big help to Sears,” Chehebar continued. “I think the two combined are going to be powerhouse retailers.”

As synergies between the two chains are realized, Sears and Kmart might also have to work to keep their offerings defined.

“A big question is: Can they merge their buying offices and at the same time produce a difference between the Sears and Kmart products, or will it just become a big bouillabaisse?” said Henry Warshow, ceo of H. Warshow & Sons, a stretch fabric producer.

“I think they would have to downsize personnel without relinquishing the integrity about what both stores are about,” he said. “But where do you draw the line?”

— With contributions from Karyn Monget and Marc Karimzadeh

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