Sears, Kmart merger could take IT to next level

Analysts believe the Sears and Kmart merger could be a killer combination from an IT standpoint. But one veteran of mergers and acquisitions says both companies need to get IT to the M&A table ASAP.

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The proposed marriage of Kmart and Sears could give both of these corporate centenarians an exciting fresh start, analysts said. And according to one IT executive who has "been there and done that" with mergers and acquisitions, the two companies would be smart to bring IT to the table as early as possible.

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In the $11 billion merger announced last week, Kmart Holding Corp. will acquire Sears, Roebuck and Co., creating Sears Holdings Corp. Rarely has a retail merger been of this scope -- the new firm would be the nation's third largest retailer (behind Wal-Mart and Home Depot) with $55 billion in annual revenues and nearly 3,500 retail stores. A Sears spokesman said his company expects the deal to close possibly by the end of March.

"There is a lot of work to be done between now and [then] and more that will be done after that," said Chris Bratwaite, director of media relations for Sears. He added that it's too early to say what impact the merger will have on the IT departments at the two companies.

Taking inventory

A merger of this magnitude calls for a thorough assessment of the tech portfolio to see where the overlaps are and where the synergies could be, one retail analyst said. That's most likely what both firms are doing now -- figuring out what they've got.

"They're trying to understand what systems, infrastructure, telecommunications and human resources each side has," said Rob Garf, an analyst at Boston-based AMR Research Inc. "It's a lot of work for the IT departments and requires lots of dialogue."

Garf added that both companies -- particularly Sears with its powerful data warehouse – need to understand that the right use of technology can be a differentiator and an ally in the battle with Wal-Mart and other specialty retailers. He just hopes they can keep innovating while they're stepping back and reassessing.

"I just hope [the merger] doesn't cause [either company] to lose their tech momentum," he said.

One way to keep that tech momentum and innovation going may be to keep IT in the loop from the very start.

Did Sears or Kmart send someone from IT down to say how much the equipment and contracts are worth? If they're smart, they will.
Dean Lane
CEOVaritools Inc.

Bringing IT to the table

Dean Lane, CEO of Varitools Inc. in Sunnyvale, Calif., has been in the M&A trenches before, on the side of the acquiring company. A former senior director of IT at Symantec Corp. and ATK Thiokol Inc., Lane said things run much more smoothly when IT isn't an afterthought in the M&A process.

Too often, though, it is.

"Most companies don't include IT in the due diligence," he said. Hidden costs in IT, such as long-term contracts for maintenance, impact the valuation of the company, Lane said, and are the reason why IT should have a seat at the M&A table.

"Did Sears or Kmart send someone from IT down to say how much the equipment and contracts are worth? If they're smart, they will," he said.

Sears' IT employees, if they're anything like the "acquirees" Lane has dealt with in the past, are feeling the integration anticipation -- will they be around, and will their systems survive?

It's 'a good thing'?

Where they may like to go is head to head with Wal-Mart. Laurie Orlov, a vice president and principal at Cambridge, Mass.-based Forrester Research Inc., thinks the acquisition, to borrow a line from Martha Stewart, is "a good thing."

"IT in the retail world is so affected by what Wal-Mart does," she said. "Sears and Kmart want more control of the IT aspect of their supply chain. If there are innovations at either company that will trump Wal-Mart, then this combined muscle is good."

Cathy Hotka, principal of Cathy Hotka & Associates, a retail IT consultancy based in Washington, believes the two companies will focus their tech efforts on a combination of supply chain efficiency and attention to the customer. Both firms are loaded with customer information, she said, and combining IT forces will allow them to find real synergies and fill any possible gaps.

"They have interesting personalities and strong people who 'get it' from an IT perspective," she said. "We're all jazzed about the possibilities."

Hotka is excited, but she added that no one really knows how this will play out. She figures it will be a year before anyone has a clear understanding of what the one entity will look like.

The biggest pitfall for either organization is to fall into a 'this is the way we do things' mentality. 
Rob Garf
AnalystAMR Research Inc.

Avoiding the pitfalls

In the meantime, the two companies must make sure their old attitudes don't cloud their new future, as they determine how to integrate all this IT, AMR Research's Garf said.

"The biggest pitfall is for either organization is to fall into 'this is the way we do things' mentality," he said. "They need to reassess their business processes and technologies and cherry pick the best things from both places and listen to everyone from the top to the trenches."

Lane offered another pitfall -- other departments that aren't team players. If business units, for example, don't work out their processes and requirements, the IT departments can't start consolidating and actually merging, Lane said. But if the teamwork is there, any obstacles can be overcome.

"It's work, but if it's done right and you all work together as team, there's not too much that's insurmountable," he said.

"I'd go through it again."

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