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We got tons of email yesterday in response to our Special Alert and lead story about the Kmart and Sears merger.

MNB user David Diamond wrote:

What this (merger) does give us:

1) Proof that Eddie Lampert is as financially smart as he is alleged to be. He is a big winner, almost no matter what happens.

2) A huge opportunity. If they are operationally smart, Lampert, Lacy and Lewis will fire BOTH bureaucracies and bring in a whole new team – blaming each other all along the way, to provide adequate cover. Then you could look at all of the pieces – Real Estate, Brand Names, License Agreements, etc, and build something really great. Maybe the Land’s End people become the team – they seem smart…

We admire David’s optimism. But we have to say that we think there is no chance that the Kmart/Sears folks turn to the Lands’ End folks for guidance. They may sell the Lands’ End clothing from both Kmart and Sears stores, but that’ll be about it.

Another MNB user wrote:

Just wanted to say hope that this merger is good for Kmart employees who are...low paid. I have a relative who works for Kmart and was watched co-workers get fired after 20 or 30 years of service with no package offered or any respect. I know Kmart has had it tough but good employees make a good business.

If we were a Kmart employee, we wouldn’t be hanging by our thumbs waiting for a raise. Or support. Or even acknowledgement.

Now, a pink slip…that seems like a lot more likely possibility.

Yet another MNB user wrote:

The only way this can work is 2 drastic changes. One, a tremendous investment in systems/logistics to be cost competitive and thus getting rid of a lot of layers of fat in management. Two, a real cultural change for both operations, especially K-Mart and this needs to start right at the clerk level.

MNB user Andy Casey wrote:

This is an interesting but in retrospect, not a surprising merger. After all, the principal investors are the same for both companies. Sounds a little like an admission on Kmart’s part (or more likely, Ed Lampert’s) that selling locations is not a viable retail strategy (everyone outside seemed to know that already). The truth is, it is a smart move because Kmart wasn’t going to make it on its own.

This is about as optimistic as the emails got. Abiding cynicism seemed to be much more the order of the day…

One MNB user wrote:

Well, did you see Kmart today it almost hit $120.00 a share. Somebody should go jail! Don't tell me that a year ago these guys weren't talking. But it was better for Kmart to go Chapter 11 and come back clean then Sears would step in. My little company lost $85,000.00 when they went Chap. 11. My old buyer asked me before they went, would we stick with them during there troubling times we did and we got stuck!!!! New buyer came in and wanted to know what we were going to do for them after explaining we were a little company and hope we would make back some of our loses we were shown the door. I bet "MARTHA" got paid. There should be an investigation somebody should go to jail, I was also a share holder who lost it all.

MNB user Andy Kenney wrote:

This sounds just like the same story we saw play out with the Home Centers. Struggling big box merges with struggling big box in order to more effectively compete with Home Depot and Lowes. Two diverse cultures unable to synergize and combined they pull each other down faster. This only works if there is a total commitment to forget the past and the legacy of the two chains and focus on smart decisions that support the new clear direction. My bet is they will not be able to do it.

Another MNB user wrote:

As they say down south: "when you breed two mutts, you don't get a show

MNB user Jerry Quandt wrote:

It strikes me funny that most of this morning's TV newscasts are reporting the KMART/SEARS merger as a surprise to Wall Street. Surely a simple marketer like myself has been sitting behind my desk watching Kmart move its pawns in a smokescreen effect hoping to detract attention from its " grand plan", but no one ever really knew what that plan was...except those of us who knew Kmart had two clear choices: sell off the real estate and dispose of the company or merge with another retailer.

With Eddie Lampert on the board at SEARS (14% of the common stock) and the recent departure of Julian Day from Kmart, the writing was on the wall that both companies were positioned for a merger. From a product standpoint Sears is know for its hard goods and Kmart has been building its proprietary soft goods line.

Is that enough? I say no.

By merging two fledgling companies together they may build the financial strength to compete, but neither company is inherently consumer focused. Unless Sears Holdings makes fundamental change to its corporate culture and repositions itself as consumer focused, Sears Holding will come and go faster than Dale Earnhardt Jr. at Bristol.

MNB user Bob Vereen wrote:

Two weak operations merging--doesn't sound like a growth strategy, since neither has figured out a way to be strong on its own in the current competitive situation.

MNB user Mark McSwain wrote: about the softer side of Sears. I'm talking as a guy here, but for me Sears "jumped the shark" when they brought in the shopping carts and consolidated checkout. As a kid, I lived for fall when the wishbook would come around. By early November, the pages were so dog-eared that "Santa" had a hard time figuring out what I actually wanted. As an adult Sears was the hardware store within a store; and the appliance store within a store; and the electronics store within a store; and lest we forget, the lawn equipment store within a store. The people who knew the products they sold have all been replaced by generic "clerks" who know more about how to operate the POS than which router bit I need to finish a custom molding project on the weekend. When Sears was selling service, it never occurred to me that I could get the same products cheaper at the competition. But, now that Sears sells convenience, I would rather shop where I can get the best price, which unfortunately for Sears, is usually not Sears. In my tool Shed, the Craftsman brand is slowly being replaced by names like Ryobi, Gravely and Stihl. The final straw for me was the discovery that my "Craftsman Club" card was not needed because that program has been dropped.

Sorry to be picking on Sears here, but this news neither encourages me nor saddens me, it angers me ... that my once favorite place to shop has become an "also-ran" discount retailer. There, I got that out of my system....I feel better already.

Yet another member of the MNB community wrote:

To me, it sounds like an impossible dream. Lets face it, the customer base for the two chains are different and making this mesh is going to be the retail miracle of 2005-2006. Good luck, myself, I will short the new stock when the merger is complete.

MNB user David L. Livingston wrote:

That sure is big news for two retail chains hardly anyone goes to shop at. If I had all of Kmart's new found cash, the last place I would invest it would be in a game that Wal-Mart can kick my butt at.

Another member of the MNB community observed:

Throw in Winn-Dixie as a partner and you could have two things, the world's largest going out of business sale and the worlds largest real estate company.

MNB user Richard Sokolnicki chimed in:

So...two companies that are running around in the dark trying to figure out how to stay alive merge...and all is well in the world! I'm still laughing.

Kmart continues to be profitable by selling off real estate holdings or interests, and Sears keeps trying, and trying, and trying something new. Or at least it "tries" to copy someone else like Kohl's. I can't wait to read all the analysis on this one.

Well, here’s our further analysis, after a day of consideration…

We have no doubt that in the short-term, this will be a financially successful merger. Folks with stock will do just fine. People with a lot of stock will do great.

But we simply have no faith that these two companies, neither of which individually was able to make a compelling case to consumers for why it should be the retailer of choice, will do better as a single corporate entity.

Cultures will clash. Egos will frazzle. Costs will be cut, even as same store sales plummet. And at the end of the day, real estate will be sold, because that’s really what this deal is all about.

Good ol’ Fast Eddie Lampert is a very smart guy. Think of it this way. While chairman of Kmart, he sold real estate to Sears, which helped the company generate profits when he couldn’t get customers into the stores. Now, he’s going to end up owning the real estate again…and will probably sell it all over again.

There’s absolutely nothing in this for consumers. Nothing. Because as Howard Davidowitz told the Seattle Times, Sears/Kmart is not a retailing company. And there is no reason to expect that it ever will be.
KC's View: