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Sears Holding Corporation Proposal Report

In: Business and Management

Submitted By obisakin1
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We are proposing that Sears Holding Corporation (SHC) divest its subsidiary Kmart Corp. Sears was once a retail giant that offered home appliances, clothing, and hardware. Kmart Corporation acquired Sears, Roebuck and Co in 2005 in the optic of accelerating their process of expansion as Sears targeted several Kmart locations. The merger of those corporations was also made to facilitate the access of branded products to their respective customers. They kept their own specific brands to continue focusing on their customers. By sharing their intelligence data they wanted to improve their revenues and minimize their overall annual costs. However now because of the recession, Sears is becoming less viable as time goes on and it stays alive by shutting down over a hundred storefronts across the nation. Kmart wanted to compete with large discount retailers like Wal-Mart and Target so they acquired Sears which now seems to be their downfall. Kmart sales have gone down tremendously because it has not successfully anticipated consumers’ needs. The immediate response of the merger was a decline of 84% in income and later on a net of $170 million loss during the first quarter of 2011. Even if the company’s profit has been positive this year, it seems that it is not at its fullest capacity. Sears’s problem is that it needs to focus more on their own identity and help its own brand image. By dropping Kmart, they can revamp their old fashioned image and give consumers what they want. By focusing on these brands, Sears can increase revenue and get back to achieving retail supremacy.
Background Information
Sears, Roebuck & Co merged with Kmart Corporation in the spring of 2005. The reasons for the merger included synergy and cost savings. The corporation planned to remain as individual stores while merging their products, real estate, culture and ideas. The corporation is structured as strategic business units with five major units including: operating business, support, brands, online and real estate. The operating business includes the stores themselves. Although over the years SHC have revamped, closed, and opened different types of stores the basic stores include: Sears Hometown/Home appliance showrooms/Hardware and Indoor stores. The two types of Kmart stores include their supercenter and traditional store. SHC is the nation’s leading home service provider. SHC offers product repair services to their customers with over 10 million service calls provided every year. The Online segment of SHC includes “SHOP YOUR WAY” and the mygofer service. “SHOP YOUR WAY” a social shopping experience where shoppers can earn points and receive benefits through Through its mygofer service, SHC offers its customers the convenience of online shopping with same-day in-store pick-up or delivery for Kmart customers. At the website, shoppers can order a wide range of and pick up their orders at over 600 stores on the same day. While in some cities such as New York, shoppers can also request same-day home or office delivery. The real estate business unit of Sears Holdings (SHC Real Estate) is a leading global real estate organization. They offer several buildings for purchase, lease or sublease.

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Internal Analysis
To highlight the weak financial wealth of Sears since the merger in 2005, we conducted an internal financial analysis through the use of various databases such as Yahoo Finance and Edgar Online I-Metrix. The main idea was to focus on the company’s performance for the past eight years through the analysis of its revenues and net incomes. In 2005 the revenue of the company drastically dropped to $19.8billions and its net income to $1.1billion. But the year after the company managed to increase its revenue to $49.2billions and maintain a steady growth to $53billions in 2007. Unfortunately in 2008 the Sears Holdings Corp faced a slight decrease of its revenues to $50.7billions and kept this alarming decreasing trend until 2012 where its revenues are evaluated at 41.6billions and its net income at negative $3.1billions.
We decided to go over each of the company’s segments’ performance and realized that Sears Domestic was overall the most profitable segment of the company for the past three years with revenues of approximately $1.5billions. Kmart realized approximately $1.05billion and Sears Canada realized $875millions.
The company’s profitability in 2012 was done through the evaluation of various profitability ratios. We observed that the earnings of the company in the 3rd quarter of 2012 are -447millions. The operating and profit margin are negative too, respectively -0.0044 and -0.0087 which demonstrate a very weak profitability. The asset turnover is positive and follows a steady growth trend from 5.76 to 5.84 which demonstrate the ability of the firm to manage its assets and generate earnings from them. The inventory turnover is positive but follows a declining trend from 3.51 to 2.76 which indicate that the company should put more effort into the management of its inventory.
Finally we evaluated the 2012 income statement which summarizes the key financial points of the company. With a revenue of $40.08billions, a net income of -$2.83billions and a diluted EPS of -26.84. Those negative statistics reflect the poor financial health of the company. By taking a look at its stock performance we observed an increase in its stock price from under $30 in 2004 to $180 in 2007. But then because of the economic recession the company’s stock price drastically dropped to around $30 in 2009. Since then the highest peak of the stock was $120 in 2010 and in the later years a steady movement between $60 and $90.…...

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