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A Kmart store opens inside a Sears store in Brooklyn, and more may be on the way

Key Points
  • Sears just opened up a mini Kmart store inside a Sears location in Brooklyn.
  • The department store chain is also about to start testing mini Sears shops, selling appliances, inside its Kmart locations.
  • Sears is piloting the new concepts as its sales continue to decline and debts mount. The retailer is also in the midst of evaluating a major asset sale.
The grand opening of the Sears-Kmart store in Brooklyn, New York.
Source: Sears

Despite tumbling sales, mounting debts and looming maturities, Sears Holdings is still testing new initiatives to see if something sparks a turnaround. The latest one brings its Sears and Kmart brands together under one roof.

A pint-sized Kmart convenience shop was opened inside a larger Sears store in New York's Brooklyn borough this weekend. The 10,000-square-foot Kmart sells everyday items including groceries, health and beauty supplies, cleaning supplies and pet gear.

Sears will also soon roll out appliance shops selling higher-end merchandise inside some Kmarts, a spokesman told CNBC. Kmart sells some appliances, but only at opening price points.

The moves look to be an attempt by the company to merge Sears and Kmart, capitalizing on the strengths of each brand and bringing the best-selling merchandise to the other. This is also a way for Sears to do more with less real estate, as it shutters hundreds of stores across the U.S.

The plan in the near term is to try out the new concepts and see what sticks, according to the company. The goal is for the Brooklyn combo store to become a one-stop shop, similar to a CVS or a Walmart, selling a wider range of items. It follows similar moves by rivals Target, Kohl's, J.C. Penney and Macy's — scaling down the size of a store, moving other retailers inside or opening up a tinier location altogether.

Still, the initiatives could be too little too late for Sears.

The launch of the new Kmart shop in Brooklyn comes at a time when Sears is struggling to stay afloat, weighed down by declining sales, a heavy debt load and too much real estate. The retailer has been shedding its assets — recently another round of dozens of stores — to raise cash and try to inch its way back to profitability. Sears is also in the midst of evaluating a bid from CEO Eddie Lampert's hedge fund, ESL Investments, to buy parts of the business, including the Kenmore brand.

But Sears, led by Lampert, argues the company still has a loyal base of shoppers — buoyed by its Shop Your Way membership platform — who come to Sears and Kmart stores for their convenience. The company said its customers are welcoming the changes.

"There are common things that everyday customers came into the Sears store looking for and unfortunately we had to turn them away," Pearl Thompson, the manager of the new Kmart convenience store in New York, told CNBC. That's not the case anymore, she said.

"Our existing customers have been asking for these products (i.e. dish detergent and toothpaste), and we are also seeing new customers as part of the [grand opening]," she said.

New York is the site of the store-within-a-store trial because Sears has "some of [the] best stores there," a company spokesman told CNBC. "Our focus is continuing to focus on our best stores. ... It's a market where we have a long history."

Looking for ways to make its stores more profitable, Sears has also been testing small-format stores that sell only mattresses and appliances.

Here's a closer look at the new Sears-Kmart store in Brooklyn:

The outside of the Sears-Kmart store in Brooklyn at the grand unveiling.
Source: Sears Holdings
The Kmart shop is located on the lower level of a Sears store in Brooklyn.
Source: Sears Holdings
Upstairs, Sears is advertising that shoppers can buy everyday items now from Kmart.
Source: Sears Holdings
A look down one of the Kmart aisles.
Source: Sears Holdings
The checkout area within the store.
Source: Sears Holdings
A look down one of the Kmart aisles.
Source: Sears Holdings

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