Chicago ? Kmart Corp.’s cheeky proposal to acquire Sears, Roebuck and Co. for $11 billion may be wowing Wall Street, but it doesn’t do anything to fix the serious problems afflicting two of the country’s largest retailers, retail and business strategy experts say.

Kmart’s retail business is shrinking at an alarming double-digit rate. Sears is only slightly better off, closing in on its fourth straight year of sales declines.

Neither company has articulated a strategy for attracting shoppers in a retail world increasingly dominated by discount juggernauts Wal-Mart Stores Inc. and Target Corp.

“If I put Kmart and Sears together, I’m putting together two broken business models,” said Adam Hartung, managing partner in Spark Partners, a business strategy firm in Long Grove, Ill. “You put a bad heart and a bad liver together, and you don’t get a healthy body.”

Retail consultant George Whalin agreed: “I suppose it’s good for the real estate guys and stock speculators, but it’s certainly not better for retail. And it’s certainly not better for customers.”

Kmart Chairman Eddie Lampert, the value investor whose hedge fund owns 53 percent of Kmart and almost 15 percent of Sears, touted the potential synergies of combining two large retail firms Wednesday.

Kmart’s exclusive Martha Stewart line of housewares can be sold in Sears, for example, and Kmart can sell Sears’ popular Kenmore appliances and Craftsman tools. Some underperforming Kmart stores can be converted to a new format known as Sears Grand that combines Sears’ most popular categories with impulse items such as snack food and soda.

But neither Kmart nor Sears’ problems can be solved by such short-term tactics, many retail experts agree.

Analysts skeptical

“Martha Stewart didn’t turn around Kmart, and it won’t turn around Sears,” said Erik Gordon, a marketing professor at John Hopkins University in Baltimore.

Dorothy Martin, Baldwin, leaves the Sears, Roebuck and Co. store in Lawrence. Martin shopped Wednesday after Kmart announced that it was buying Sears in an 1 billion deal.

The Kmart deal will help Sears expand its presence outside shopping malls at a faster rate, he says, but that doesn’t address the real issue either.

“Unless you’re buying a car battery, monkey wrench or dryer, you don’t think of Sears,” Gordon said. “It wasn’t the mall that was hurting Sears. Sears hasn’t figured out how to reinvent itself.

The basic problem for both Sears and Kmart comes down to a simple proposition: They aren’t compelling places to shop anymore, retail experts agree.

Feistier competitors such as Home Depot and Lowe’s are eating away at Sears’ longstanding dominance in the appliance and hardware business, while category killers such as Best Buy and Circuit City dominate the sale of consumer electronics.

Wal-Mart, the world’s largest retailer, now is the country’s largest toy retailer as well as the largest seller of jewelry, both former strongholds of Sears.

Kmart was forced to seek bankruptcy protection in January 2002 as it lost ground to Wal-Mart’s low prices and more efficient organization.

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‘A sharp financial deal’

But the Sears-Kmart deal wasn’t put together as a way to remedy that, marketing experts say. It’s a financial deal, like many of the takeover plays during the 1980s when companies were acquired for their overfunded pension plans or because they had undervalued subsidiaries.

The motivation of corporate raiders was simple: Take the money and move on.

Investors are betting that Lampert’s plan is similar: Unlock the underlying value of the real estate of Sears’ and Kmart’s more than 3,500 stores. Sears was an even more attractive takeover target because it sits on nearly $3 billion in cash from the sale of its credit-card business last year.

“It’s a sharp financial deal from a sharp financial guy that has nothing to do with retailing,” Gordon said. “It’s all about the real estate. It’s all about the cash, and the efficiencies, which means people get fired.”

And it may work. Sears and Kmart could reap billions by selling store properties and leasing them back, predicts Bill Bishop, president of Willard Bishop Consulting in Barrington, Ill.

“It doesn’t have to be about breaking up the company,” Bishop said. “They could take all the real estate owned, sell it and lease it back for 20 years and have a tremendous windfall. There’s a lot of investment money looking for a home.”

Others think Lampert’s treatment will be a lot more drastic and harmful for Sears’ long-term future. At Kmart, he has slashed capital spending and cut back on inventory, hardly moves that help a retailer thrive. He may decide to close as much as a third of the combined company’s store base, more than 1,000 stores, some experts predict.

Historical approach

There’s no question Wall Street loves the deal. Both Sears’ and Kmart’s stock soared Wednesday. Of course, optimism usually carries the day when big deals are announced. Yet history shows that big mergers fail more often than they succeed.

“When we look at deals on a transaction basis, big transactions fail to create shareholder value three times out of four,” according to David Harding, a partner with Bain & Co.’s Boston office and co-author of “Mastering the Merger.”

Meanwhile, merged companies typically are distracted and inward-looking for at least two years following the deal, a period in which they often lose more ground to more focused competitors, he said. Their earnings suffer because of the high cost of integrating computer systems and consolidating buying and distribution operations, not to mention severance packages for laid-off employees.

These costs create “negative synergies” in the early months of a merger, Harding said. And if Kmart and Sears continue to operate as two separate entities, it will be hard to overcome that and create real efficiencies going forward.

“They need to be maniacally focused on putting these companies together,” he said. “What you don’t want to become is a zombie,” a half-merged company that can’t reap the promised benefits.

One thing the merger may achieve is an exit strategy from Kmart for Lampert, retail analysts say.

He can now aggressively close underperforming Kmart stores and sell the real estate or convert them to Sears stores.

“My guess is Kmart will go away in the next three or four years,” said Whalin, president of Retail Management consultants in San Marcos, Calif. “I’ve wondered why it existed at all.”