Kmart, Sears begin
brand consolidation

Some are skeptical the company
can keep up with rivals

NORRIDGE, Ill. » Martha Stewart, meet Craftsman tools and Kenmore appliances.

The home doyenne has some new brand neighbors in the aisles of select Kmart stores -- and likely Sears stores too at some point. Sears Holdings Corp., which reports quarterly results for the first time this week, hopes the emerging partnership can breathe new life into two faded retail behemoths under its 10-week-old ownership.

"We're looking at different opportunities on how Sears and Kmart can cross-merchandize," Sears spokeswoman Lisa Gibbons said yesterday in this Chicago suburb at one of nine newly remodeled Kmart stores now offering Sears merchandise.

Scant sales data exists to assess how Sears Holdings and its 3,800 stores are faring since the company was formed with the March 24 purchase of 119-year-old Sears, Roebuck and Co. by Kmart Holding Corp. Edward Lampert orchestrated the deal as Kmart's chairman and Sears' largest shareholder. Sears Holdings is carrying on Kmart's contrarian policy of not reporting monthly sales results.

But Wall Street is cautious amid skepticism that Sears and Kmart are struggling any less now that they have joined forces. Only one analyst offered an estimate of first-quarter earnings in an industry survey by Thomson Financial, compared with two dozen for Wal-Mart Stores Inc.

Some experts openly doubt the company can keep pace with fast-expanding rivals while being necessarily preoccupied with melding Kmart and Sears. This year, competitors such as Wal-Mart, Target Corp. and Kohl's Corp. will be adding a total of 100 million square feet; next year, that number will be about 110 million square feet.

Industry consultant Burt Flickinger believes consolidating the two businesses is "somewhat chaotic" for now. He expects it will take six to 16 months for the two companies to finish combining -- during which time sales are likely to suffer as key competitors sharpen their merchandise offerings and get bigger.

"First-quarter sales should be a little soft," said Flickinger, managing director at Strategic Resources in New York. "But the real cause for concern will be the fourth quarter," which includes the Christmas season, and next year, he said.

No such pessimism is on display at the revamped store in Norridge, the only Kmart stocking Sears products from all areas being tested -- appliances, lawn and garden and tools, along with a home improvement products kiosk.

A gleaming display of Kenmore washers greet customers near the entrance and colorful banners nearby proclaim "Craftsman and Kenmore -- Great Brands," trying to draw them to the new tool area located across from Martha Stewart patio furniture.

While the revamped sections were drawing only a trickle of traffic yesterday morning, Gibbons said customer reaction to the test in the nine stores has been "very positive, not only with Sears products but the layout of the store." The store changes also include wider aisles, lower shelves, brighter lighting and improved signs.

Chicago resident Ken Peters went to Kmart for other items but emerged with a Craftsman drill bit -- seemingly just the kind of business the company wants to attract. However, he said he won't necessarily be coming to Kmart to buy his tools.

"If there's something else here, I might consider it," he said. "But I don't think it's going to change my habits."

The company isn't tipping its hand on when products from the popular Martha Stewart brand might become available in Sears stores, although analysts would be surprised if it isn't soon.