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A series of monster deals such as Kmart's merger with Sears and ongoing shakeups in struggling sectors such as toys and the department store industry transformed the retailing landscape this past year, reducing the pool of billion-dollar chains to fewer players.
While deal-making picked up a frenzied pace in 2004, especially among the large chains, bankruptcies and liquidations tapered off from 2003, indicating a healthier retail economy despite all the talk about shoppers cutting back because of high gas and fuel prices. Several companies went public, while others reverted to private status in some cases.
The surprise news of the year was undoubtedly the union of Kmart and Sears to form a $55.8 billion retail company that is the fourth-largest in the United States, bouncing Target out of that spot. The struggles of each retail brand have been well-documented, including Kmart's bout in bankruptcy, leaving the future murky as to how the new Sears Holdings will fare. But Eddie Lampert, Kmart's chairman who is now in charge of the combined company, has worked wonders making Kmart profitable again despite ongoing sales declines.
More fallout from the Sears deal is likely in the coming year as the new company forges its direction, experimenting with new off-mall concepts called Grand and Essentials. Many retail experts suspect the Kmart banner will fade away in time, especially given Sears' intention to convert several hundred Kmart stores to a Sears format.
A high level of maneuvering also took place in the department store sector this past year. Federated Department stores acquired longtime rival May Co., doubling in size to a $30 billion company with stores in 49 states. The deal, which is still pending, came a year after May itself bulked up through the purchase in July 2004 of Marshall Field's from Target.
Other deals in the channel include the pending purchase of Texas-based Neiman Marcus by two private equity firms, Belk's pickup of 47 Proffitt's and McRae's stores from Saks and the acquisition of Barneys New York by Jones Apparel Group. Also this past year, Target unloaded its struggling Mervyn's mid-tier chain in a sale to Sun Capital Partners.
Reshaping the drug store landscape was JCPenney's divestiture of its Eckerd division. CVS and Brooks Pharmacy shared in the spoils, with CVS claiming the title of top drug chain as a result of 1,260 Eckerd stores acquired while Brooks, a division of Canada's Jean Coutu Group, picked up 1,539 Eekerd units and became the No. 4 drug retailer.
Ongoing troubles of toy retailers brought more upset in 2004. KB Toys, in bankruptcy since early 2004, has now closed more than 600 of its original 1,240 units and has yet to file a reorganization plan, bringing into question that chain's viability. Leading toy chain Toys "R" Us, meanwhile, considered separating from its Babies "R" Us division but then reached a deal to be acquired by a consortium of retail investors headed up by private equity firm Kohlberg Kravis Roberts. And Disney called it quits in toy retailing, selling …