The discount chain is renting about 7,000 square feet inside existing Kmarts to Sears dealers in four towns -- Claremont, N.H.; Freedom, Calif.; Pell City, Ala.; and Zephyrhills, Fla. The dealers sell hardware, appliances, lawn equipment and some consumer electronics, the Chicago Tribune reported.

Some observers see it as another step toward an expected merger.

During the past year, Sears Holdings Corp. (NASDAQ:SHLD) has been moving its best Sears brands into Kmart in an effort to reach more shoppers and rekindle sales.

Craftsman tools and DieHard batteries are on Kmart shelves and one out of every 10 Kmart stores now sell Kenmore appliances.