I suspect the leadership of both Sears and Kmart had no idea of where they wanted to go. My favorite example of this is the Kresge family, that had founded SS Kresge that later become Kmart. In the 1980s or 1990s (It has been a long time since I read about the problem) Kmart's board of directors decided the long term policy of Kmart NOT to sell any liquor should be changed. Kresge family objected for their were teetotalers and had always forbade the selling of any alcoholic items from SS Kresge and later Kmart. Those objections were overruled by the Board of Directors, and the Kresge Family sold off their stocks for they refused to earned any money off the sale of Alcohol. I bring this story up, for it shows that the Board of Directors of Kmart was willing to do anything to gain short term profits, even if it meant turning away long term investors. Such a Board will also ignore what its employees want and want they customer's want. In many ways that was and is the main problem with Kmart and Sears, the people in charge of both refuse to listen to their customers or their employees.
50 years ago, Sears was the "Man's Store", it is where men went shopping. I had tools, outdoor supplies etc. Sear has clothing, but it was mostly "black mail" items i.e Wife: "Here I need some new bras, a new dress and other things for the Kitchen, you pay for it since you are buying that new drill, when you already have three!!!" Husband: "Yes Dear, but with this drill I can do X, the other drills I can only do Y".
No one went to Sears to buy clothes, you went to sears for other items and then clothes if you saw something you liked or needed.
The down side of the above, was clothing had a much larger mark up then tools, thus more profitable. Sears thus slowly expanded its clothing market, neglected its tools, white goods, outdoor goods etc section for their were low profit when compared to clothing. Sears just refused to accept the fact that Clothing was NOT why people went to Sears, the profit was to high.
The Shift to emphasizing clothing accelerated in the 1980s as Sears shifted its view of its main Competitor from Montgomery Ward to Kmart.
One observer in the 1980s commented that Sears was having a hard time to adjust to the fact its Customers were changing. In the 1880s, Sears Main Customers were small farmers in the sticks, but as people moved into urban areas, Sears opened stores in Urban Area after 1900. When People started to move to the suburbs in the 1930s (and accelerated in the 1950s), Sears upgraded its stores to better fit the increase income of post WWII working class men and women. Starting in the 1980s, as Income of the Working Class stagnated, Sears tried to upgrade itself into the Upper Middle Class. The problem the Upper Middle Class does NOT shop in Sears, except for the same items the Working Class wanted from Sears. Sears started to lose its customer base to other stores catering to people (Mostly men, but includes many women) who wanted TOOLS, WHITE GOODS and OUT DOOR Equipment. Sears sets its prices for the Upper Middle Class Market, and its Working Class customers went elsewhere,
Since the 1980s, Sears has had a problem. Its customer base's (Working Class people) income has stagnated. Upper Class people's income has increased and Sears wanted to get those customers, but they went to upscale stores. Sears kept trying to upscale itself, but most Upper Middle Class people still viewed Sears as a Working Class Store and went they only for non-clothing items. Sears saw the huge profits in clothing, kept trying to get the Upper Middle Class to come to Sears for Clothing, and slowly lost its base, the Working Class, by ignoring them and assuming they would also come to Sears.
K-mart was better in the 1970s, Kmart never saw itself as a upscale store. The problem was in the 1980s and 1990s it ran across the same dilemma as Sears, clothing was high profit and where they wanted to go, but their customer base was the Working Class and working class income had stagnated. K-mart tried various ways to improve its market, all at the expense of its customer base. Like Sears, the leadership of Kmart saw the huge profits in upscale stores and wanted to get into it, but forgot that Kmart was NOT an upscale store. Customers went to Kmart for Bargains not the latest greatest thing.
Kmart and Sears was thus in the same situation in the 1990s, their Customer Base, the Working Class, income had stagnated and with it the ability of each to increase sales had diminished. Walmart, had started out in areas of the Country Sears and Kmart had ignored. Kmart had started as Kresge's in the early 1900s in urban American (including small towns). Sears had started out as a Catalog store for Rural America, but as people moved off the farm to the cities, Sears went with them. Thus Kmart and Sears were weak in Rural America, and Walmart, along with cheap gasoline, took such rural areas by storm.
Once Walmart had most of Rural America sewed up, it moved into Suburban America, but from the Rural Areas not from the Inner City as Kmart and Sears had done. This permitted them to cut cost by buying cheap land and building their stores and having people drive to them, as opposed to Kmart and Sears that had always followed their customers to be near them. The Sears and Kmart policy had worked, but both ended up with stores in locations where the locals could also drive to a Walmart. The Working Class looking for the best price, ended up driving to Walmart, taking their income with them.
Thus Kmart and Sears was being hit two ways, First they base, which they had ignored from the 1970s onward, abandoned them for Walmart, Lowes, Home Depot and other large stand alone stores catering to the working class. At the same time Kmart and Sears kept trying to enter the upscale markets and kept failing for people did not go to Kmart or Sears for upscale items.
Finally in the 2005, Sears and Kmart merged. It was like two drunks going home from a bar, both could not stand alone, so they proceeded to go home holding each other up. In my opinion it was a marketing debacle. Kmart should have stayed as it was, a discounter for that is what people saw it was. Sears should have concentrated on its hardware section, ignoring the high profit clothing market. You concentrate on what people go to you for, in the case of Sears it was White Goods and Hardware items not clothing.
The problem appears, neither Sears nor Kmart's board of Directors liked the idea they should stay in the areas they were noted for and stay out of areas no one goes to Kmart or Sears for, no matter the profit margins. Concentrate on what you are good at and that is where Sears and Kmart has FAILED since the 1970s.
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