Sears 2006 Annual Report Download - page 2

PART I
Item 1. Business
General
Sears Holdings Corporation (“Holdings” or the “Company”) is the parent company of Kmart Holding
Corporation (“Kmart”) and Sears, Roebuck and Co. (“Sears”). Holdings was formed as a Delaware corporation
in 2004 in connection with the merger of Kmart and Sears (the “Merger”). The Merger, completed on March 24,
2005, combined two of America’s oldest existing retail entities, both with origins dating to the late 1800s. The
Company is a broadline retailer with approximately 2,300 full-line and 1,100 specialty retail stores in the United
States operating through Kmart and Sears and approximately 370 full-line and specialty retail stores in Canada
operating through Sears Canada Inc. (“Sears Canada”), a 70%-owned subsidiary.
Business Segments
During fiscal 2006, the Company operated three reportable segments: Kmart, Sears Domestic and Sears
Canada. Financial information, including revenues, operating income and total assets for each of these business
segments is contained in Note 19 of Notes to Consolidated Financial Statements. Information regarding the
components of revenue for Holdings is included in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Kmart
As of February 3, 2007, Holdings operated a total of 1,388 Kmart stores across 49 states, Guam, Puerto
Rico, and the U.S. Virgin Islands. This store count included 1,333 discount stores, averaging 93,000 square feet,
and 55 Super Centers, averaging 165,000 square feet. Most Kmart stores are one-floor, free-standing units that
carry a wide assortment of general merchandise, including products sold under such well-known labels as Jaclyn
Smith, Joe Boxer and Martha Stewart Everyday. During fiscal 2005, the Company began selling certain
proprietary Sears brand products, such as Kenmore, Craftsman, and DieHard products, and services within
certain Kmart stores. At the end of fiscal 2005, approximately 100 Kmart stores were selling an assortment of
Sears brand products, mainly within home appliances and tools. During the fall of fiscal 2006, the Company
added Craftsman tool assortments into Kmart locations nationwide. In addition, as of February 3, 2007,
approximately 180 Kmart stores were also selling an assortment of major home appliances, including Kenmore-
branded products. Approximately 1,100 Kmart stores also operate in-store pharmacies. The Super Centers
generally operate 24-hours a day and combine a full-service grocery along with the general merchandise
selection of a discount store. Kmart also sells its products through its kmart.com website.
Sears Domestic
As of February 3, 2007, Sears Domestic operations consisted of the following:
• Full-line Stores—935 broadline stores of which 861 are full-line stores located across all 50 states and
Puerto Rico, primarily mall-based locations averaging 134,000 square feet. Full-line stores offer a wide
array of products across many merchandise categories, including home appliances, consumer
electronics, tools, fitness and lawn and garden equipment, certain automotive services and products,
such as tires and batteries, home fashion products, as well as apparel, footwear and accessories for the
whole family, including the Company’s proprietary Lands’ End brand merchandise. Also, as of
February 3, 2007, the Company operated 74 Sears Essentials/Grand stores located in 25 states,
primarily free-standing units averaging 113,000 square feet and offering health and beauty products,
pantry goods, household products and toys in addition to the offerings of the typical mall-based store.
Sears also extends the availability of its product selection through the use of its sears.com website,
which offers an assortment of home, apparel and accessory merchandise and provides customers the
option of buying through the Internet and picking up their merchandise in Sears full-line stores.
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