Sears 2007 Annual Report Download - page 4

Commercial and residential customers can obtain parts and repair services for all major brands of
products within the home appliances, lawn and garden equipment, consumer electronics, floor care
products, and heating and cooling systems categories. We also provide repair parts with supporting
instructions for “do-it-yourself” customers through our PartsDirect.com website. Smaller items for repair
can be brought into Sears Parts & Repair Centers located throughout the United States or to many Sears
full-line, dealer and outlet stores. This business also offers protection agreements, product installation
services and Kenmore and Carrier brand residential heating and cooling systems. Home Services also
includes home improvement services (primarily siding, windows, cabinet refacing, kitchen remodeling,
HVAC and carpet and upholstery cleaning) provided through Sears Home Improvement Services.
Sears Canada
Sears Canada, a consolidated, 70%-owned subsidiary of Sears, conducts retail operations in Canada similar
to those conducted by Sears Domestic, with a greater emphasis on apparel and other softlines than in the U.S.
stores. In addition, Sears Canada conducted credit operations prior to the November 15, 2005 sale of its Credit
and Financial Services operations to JPMorgan Chase & Co. (“JPMorgan Chase”).
As of February 2, 2008, Sears Canada operated a total of 121 full-line stores, 259 specialty stores (48 furniture
and appliance stores, 163 dealer stores operated under independent local ownership, 5 appliances and mattresses
stores, 30 Corbeil stores and 13 outlet stores), 37 floor covering stores, 1,826 catalog pick-up locations and 106
travel offices. Sears Canada also conducts business over the Internet through its website, sears.ca.
The Merger and Development of the Business
The Merger provided Holdings a means for leveraging the historical strengths of Kmart and Sears with the
goal of making our products, brands and service offerings available through more locations and customer
distribution channels. Furthermore, Holdings is striving to become more responsive to the needs of customers,
thereby building long-term, value-added customer relationships.
Sears has a long-standing reputation for offering customers a wide variety of merchandise and related
services, with a particular emphasis on its strong proprietary brands such as Kenmore, Craftsman, DieHard and
Lands’ End. Historically, Sears conducted its business primarily using a mall-based format. At the time of the
Merger, Sears operated 874 domestic full-line stores mainly located in such on-mall locations. In response to
off-mall competitor growth, Sears commenced a strategy prior to the Merger to increase the number of its
off-mall stores in order to expand distribution points for its brands, merchandise and services. Kmart, on the
other hand, historically used large format, off-mall locations in selling a selection of general merchandise goods.
At the time of the Merger, Kmart operated approximately 1,400 off-mall stores and sought to further improve its
operational performance by pursuing opportunities to offer customers a differentiated high-quality product
selection to distinguish itself from competitors.
With Kmart’s approximately 1,400 off-mall locations, Holdings’ store base offers a greater number of
customers the opportunity to purchase Sears products and services outside of Sears’ traditional mall-based stores.
This increase in distribution points brought about by the Merger provided a more rapid and lower-cost store base
growth than Sears would have been able to accomplish on its own. At the same time, the addition of Sears-owned
brands and services, including Sears’ credit programs, to Kmart stores enhances the selection and value
proposition offered to Kmart customers and helps to differentiate Kmart from its general merchandise
competitors. During the fall of fiscal 2006, we added Craftsman brand tool assortments into Kmart locations
nationwide. In addition, as of February 2, 2008, approximately 280 Kmart stores were also selling an assortment
of major home appliances, including Kenmore-branded products. We will continue to explore opportunities to
profitably cross-merchandise products and services between our Kmart and Sears formats.
Our combined store base of approximately 2,300 Kmart and domestic full-line stores allows Holdings to
compete on a scale larger than that of many of our national competitors. The scale of the combined enterprise in
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