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call Vanessa

Written November 18, 2004

 

It was all over the news this week: Kmart Holdings purchased Sears, Roebuck & Company creating a new company called Sears Holdings, based in Hoffman Estates, Illinois.  The deal between the former retail rivals has been called everything from a brilliant move to fight Wal-Mart Stores, Inc. to a big, big mistake.

 

It is a marriage of two similar, but still very different companies.  Both retailers have been among the top ten largest in America for years.  Both are proven leaders in providing good value to the American consumer.  Both have key locations all over the U.S.  Both embraced a successful “all things to all people” merchandise strategy during their respective heydays. 

 

Sears is known for its Big Book catalog, massive mall stores, and its unwavering stance on customer satisfaction.  Kmart is known as the first discount department store to succeed nationally, for its Blue Light Specials, and as of late, for its connection to Martha Stewart: lifestyle guru turned Federal inmate.

 

But, in another similarity, neither chain’s recent history has been worth bragging about.  Sears has retrenched, sold numerous divisions, and is muddled and unproductive, despite exclusive, popular brands and universal name recognition.  Kmart has stumbled as well, closing nearly one-third of its store base and shedding departments, and seems unable to shake its reputation for cheap and shoddy merchandise, dirty stores, and poor customer service despite numerous revival efforts.

 

Both companies lost their leadership role in the industry in the 1980s, when specialty retail grew stronger and more responsive, luxury stores traded down to get more customers and category-killer retailers like Toys “R” Us and Lowe’s chipped away at key businesses for both Sears and Kmart.  Add to this the increased presence of Wal-Mart nationally and a general misunderstanding of its core customer by both retailers and it soon became the worst possible scenario for success.

 

As a single corporation, the new Sears Holdings combines over two centuries of retail experience, 3,500 stores and nearly $56 billion in combined sales into the third-largest American retailer.  Iconic brands Kenmore and Craftsman will combine with exclusive brands Lands’ End, Martha Stewart Everyday and Sesame Street.  Prized real estate from California’s chic South Coast Plaza to Manhattan’s Penn Station will share a common owner.

 

But it also merges Sears’ struggle to reach customers increasingly turned off by the enclosed malls where a majority of its stores are located with Kmart’s inability to remain relevant to shoppers who now frequent discount peers Target and Wal-Mart.  The new company is also saddled with Kmart’s failing supercenter division and Sears wavering Great Indoors home improvement chain.

 

Even with Sears Grand supercenters slowly opening across the country and record earnings at Kmart since its emergence from bankruptcy, many retail analysts see this marriage as a brief delay from the liquidation of a massive and profitable real estate portfolio.

 

Is there any light at the end of tunnel?  Could there be a white knight in the distance?  Someone who could lead Sears Holdings to the promised land of relevance and profitability?  No one’s saying, but I have a nomination, and it’s a good one.

 

Vanessa Castagna, former chairman and CEO of JCPenney stores, catalog, and Internet.

 

Castagna, formerly with Wal-Mart during that retailer’s largest growth period, was hired by Penney’s in 1999 to help revive a seriously fractured retail empire.  Primarily through her leadership, Penney’s was rescued from near-bankruptcy with more efficient purchasing, fresher fashions and marketing, and more frequent and relevant promotions.  To reach customers fleeing to the similar Kohl’s chain, Castagna oversaw a move towards freestanding JCPenney stores in power centers and new suburbs that lacked the company’s typical mall-based real estate. 

 

Today, Penney’s has returned to growth and relevance as a retailer and is poised to give the recently sputtering Kohl’s a run for the hearts and wallets of Middle America.  Castagna was a prime candidate for the chief executive position at J.C. Penney Co. vacated by retail veteran Allen Questrom, but was passed over for former Macy’s president Myron Ullman, who had more executive experience.  Castagna subsequently left the company at the end of her employment contract.

 

Considering Sears plans to amplify its off the mall presence over the next few years and the aforementioned real estate prospects of the combined company, Castagna could be the missing link to help Sears prosper and grow.  Castagna’s discount store experience plus her knowledge of the inner workings of Wal-Mart could lead to a leaner, more efficient Kmart organization that can compete with Wal-Mart on a more level playing field. 

 

Vanessa Castagna is certainly not the only person capable of saving Sears Holdings.  Current Kmart Holdings CEO Edward Lampert has created a strong company from the ruins of bankruptcy.  Current Sears CEO Alan Lacy has not had a particularly distinguished run, but did oversee the purchase of specialty retailer Lands’ End, the development of Sears Grand and the spin-off of the company’s credit card portfolio to Citigroup.  But Castagna has a demonstrated flair for merchandising and reaching middle market consumers that Lampert and Lacy clearly lack.

 

What does the future hold for the combined empire of Sears Holdings?  In the short tem, it seems that Sears will grow its off-the-mall efforts as Kmart shrinks in scope.  There will be store closings in both divisions, and some layoffs are inevitable.  Whether any of this will lead to a strong concern created from two weak companies that poses serious competition for Wal-Mart, JCPenney, Target and the like remains to be seen. 

 

But one thing is for sure: securing the right leadership for the new Sears Holdings will help things along considerably.  In this writer’s eye, that leader is a woman with a proven track record of success: Vanessa Castagna.  If she will accept the challenge, I think that it could be the key in creating a new empire instead of writing a sad final chapter for two former American retail legends.

 

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