KMart-Sears Merger - Kmart, Sears must focus on branding to build new entity

Kmart and Sears are set to merge into the third-largest retailer in the country. But the chains must do a better job of branding to reconnect with consumers.

Kmart and Sears are set to merge into the third-largest retailer in the country. But the chains must do a better job of branding to reconnect with consumers.

Kmart and Sears captured worldwide headlines November 17 when they announced plans to merge into a new company called Sears Holding. When the $11 billion deal is completed, the new entity will be the third-largest retailer in the US behind Wal-Mart and The Home Depot.

But whether the two chains can capture the hearts and minds - and cash - of consumers who have been fleeing their stores for years will depend on how well they can craft new brand messages.

Unfortunately, neither chain of late has shown it has the skills to do that. "Too often they've looked at brand as something you do with 30-second TV ads, and that's not the way you build a brand today," says Kelly O'Keefe, CEO of Emergence, a multi-channel branding firm in Atlanta.

Articulating new brand messages was not high on the list of topics covered by investment wizard and Sears Holding chairman-to-be Edward Lampert during the press conference announcing the takeover, either.

He and other senior executives mentioned the possibility of converting some Kmarts into Sears. They also discussed taking strong brands from each chain - such as Martha Stewart Everyday and Joe Boxer at Kmart and Kenmore at Sears - and selling them at the other chain. But no mention was made of who would direct PR, marketing, or advertising for the new company.

PR officials at Sears told PRWeek after the conference that a decision on who would head communications for Sears Holding could be months away. Robert O'Leary is SVP of PR, communications, and government affairs at Sears now and ran the press conference to announce the merger, but that does not mean he'll emerge with the top spot, Sears PR staffers say.

O'Leary joined Sears from Goodyear Tire in June 2003, so he's relatively new to the giant retailer, which could work against him. In September of last year, Kmart moved PR under the SVP who oversees human resources and internal auditing after its former SVP of communications, Lori McTavish, departed the company. So who will end up with the job is still anyone's guess.

Not having a designated head of PR means the two companies are subjecting themselves to months of media speculation without a chief spokesperson to defuse the coverage, says Eric Yaverbaum, president of Jericho Communications, who has handled PR for Ikea and other retail clients.

"The speculation is going to define the story." But Fred Marx, a partner with Marx Layne in Detroit and a veteran of retail PR, theorizes that the new company can take its time naming a head of PR if it expects to select an internal candidate because current PR staffers at both chains aren't likely to leave until the deal is complete.

"People don't bail out; they stick around. You might get your resume ready, but you stick around" if for no other reason than to await the severance package the new company might offer to reduce its work force, he says. Positioning the new brand Regarding overall brand messages, Yaverbaum believes the new company missed a major chance November 17 to reach out to consumers.

"That could have been an opportunity lost," he says. "What the consumer wants to know is, 'What does this mean to me?'" But Kmart's relatively new chief executive, Aylwin Lewis, who will become CEO of both Sears and Kmart in the new holding company, said during the press conference, "Our first mission is to get through the Christmas holiday."

O'Keefe somewhat echoes the sentiment, saying communications during the key Christmas selling season should be aimed at reassuring shoppers who are still loyal to the two brands that their stores will not change.

"They do have to come out initially and talk about a message that is comforting," he says. But others think the company should wait to sort out the many operational issues it will face in merging before it attempts to articulate brand positioning.

"You can't make promises too quickly," says Marx. A new PR plan from the combined company "is not something you'll see in 90 days," he predicts. The companies expect to conclude the merger by March. Kmart, which once had a large PR operation, has seen its PR resources cut since Lampert took over the Troy, MI-based retailer and became its chairman 18 months ago, notes Marx.

Lampert also controlled 14.6% of Sears stock before he engineered the deal to bring the two companies together. Proactive PR touting Kmart's stores and products has largely disappeared under Lampert, Marx says.

"It's not the typical retailer we know who is communicating constantly." Sears has tried several different brand messages in recent years to lure in more consumers, but overall it "has a pretty dismal record of trying to reinvent itself," Marx says.

It's had difficulty attracting shoppers to its various clothing lines, as well, including Lands' End, which it purchased in hopes that it would provide a boost. And while Sears remains known primarily for its Kenmore appliances and Craftsman tools, those categories have seen increasing competition from such retailers as The Home Depot and Lowe's.

Once attention does turn to branding and crafting new messages for consumers, Marx and others expect to see the Kmart name slowly fade from the retailing scene. Coming up with a distinct brand position in the discount retailing segment against mega-competitor Wal-Mart and trendy Target has befuddled Kmart in the past. That competitive landscape won't change no matter how much new PR Kmart does, says O'Keefe.

The Sears brand, however, has residual consumer goodwill that can be used to relaunch it, says Kevin Keller, marketing professor at Dartmouth's Tuck School of Business Administration.

"Sears is an American institution. I actually think people will like to see them do well," Keller says. "I actually think people are rooting for them." Sears can convert existing Kmarts to Sears stores so that it can gain locations away from its traditional mall sites and be more conveniently located. It then can position itself as a store with a collection of well-known brands, Keller says.

The typical Kmart shopper is concerned primarily with getting low prices, while the typical Sears shopper is looking for the most value for money spent. As a result, brands with some cache, such as Martha Stewart's, make sense at a new Sears that stresses the value it can offer.

Revamping Sears' image Successful retailing today has become about more than simply brands, however. It's extended into experiences and finding ways for customers to feel good about the companies they do business with.

"They have to make Sears more of a destination," Yaverbaum says. "They have to come up with a reason that's more compelling for people to come to Sears. I don't think the brands they have are enough, and I think they are going to announce more brands."

More brands mean more possibilities of connecting with consumers. They also will insulate the company should one brand run into image problems, such as the legal troubles that befell Martha Stewart, Yaverbaum points out. Lampert is a business media star at the moment, having recently been on the cover of BusinessWeek and being compared to super-investor Warren Buffet, notes Marx.

"He's like a rock star. He's got star power in the investment community," Marx says. That likely means the media will be patient in waiting to see how Lampert will turn Sears around. But consumers might not be. The new Sears needs to start getting messages together that will keep current customers and attract new ones, otherwise it will become a larger troubled retailer than either of its two predecessor chains were on their own.

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