First, the company needs to determine who they are -- what their mission is. If they want to be a low-cost leader and compete head-to-head with WalMart, increasing their economies of scale is critical. However, I don't think this is truly feasible. Instead, I would suggest that they find a way to differentiate themselves from WalMart, much like Target did. They attempted a very similar approach with hiring Martha Stewart and Joe Boxer, but these names were not powerful enough to pull the entire company through the financial trouble they were in and rebuild the Kmart name. For this reason, they need to discover a different mode of attack -- something that Target and WalMart don't offer.
With their merger with Sears, I would suggest that they keep the brands and strategies separate, but utilize whatever economies of scale they can manage from the merger. Kmart could utilize the electronics buying power of Sears and become a low-cost department/grocery store, as they are, but who specialize in electronics. Although Target and WalMart both offer electronics, if Kmart were to offer well-trained and helpful employees, much like you'd find at a store that solely sells electronics, this would give them a significant advantage.
Sears has a similar unique advantage still in place that they simply need to capitalize on -- knowledgeable employees. Although stores...
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