A Closer Look at the Kmart Corporation and Retail Stores

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The Kmart Corporation is an intriguing company because of its obvious struggle to compete in the discount retail industry. With its current bankruptcy filing, Kmart seemed to be an interesting company to investigate regarding marketing practices. We have taken the opportunity to investigate Kmart’s past and offer suggestions for their future.

Kmart has long been known for its boom and bust cycles. The chain was started in 1962 as a discount division of the S. S. Kresge Company, a five- and-dime store that was chief competitor during the first part of the century.

In Section 1 is the basic history of Kmart from its birth to its current state. This history includes interesting partnership history and the growth cycles of this large corporation.

In Section 2 we have covered Kmart’s financial strain stemmed largely from the company’s fierce battle with its competitors, Wal-Mart and Target. This section also includes Kmart’s, poor holiday sales, the current recession stemming from “September 11,” a series of unsuccessful sales and marketing initiatives and, the recent erosion of support among its vendors.

Section 3 gives brief coverage of Kmart’s including some history on their gun and ammunition policy, discriminatory practices and the aggressive competition from discounters Wal-Mart and Target.

Current technologies and Kmart’s adoption of those technologies is discussed in Section 4. Kmart has made many unsuccessful attempts to utilize technology to its advantage but the company’s poor planning has cost Kmart millions of dollars. Wal-Mart’s aggressive advancement in information technology and electronic supply chain management technology makes it more favorable retailer.

Section 5 discusses the current marketplace including competition and Kmart’s current sales figures compared with others in the market. This section gives an overview of the more specific differences between Kmart and its competitors.

As well as reviewing Kmart’s past and dissecting the company’s current condition, we have also offered some suggestions for positive change. Within Section 6 are suggestions based on our perceptions as well as those of industry experts.

Though Kmart may currently be down, we are certainly not counting them out. It is our conviction that Kmart’s struggles will be well worth watching in the near future as this once-successful company, works its way up from the bottom.

Section 1: Introduction

In 1899, Sebastian S. Kresge founded a small five-and-dime operation called the S. S. Kresge Company. In 1962, the S. S. Kresge Company, under the direction of President, Harry B. Cunningham, opened the first Kmart department store in a Detroit, MI suburb. That same year, 17 other Kmart stores were opened.

Kmart established itself early as a discount department store offering a large variety of goods at low prices. In 1966, the same year Sebastian S. Kresge passed away, sales topped $1 billion for the first time. By 1976 Kmart had established 1,206 stores which accounted for 73 percent of the stores owned by S. S. Kresge Company. In 1977, to reflect the fact that Kmart stores accounted for 94.5 percent of the company sales, the S. S. Kresge Company changed its name to the Kmart Corporation.

Only five years after the Kmart Corporation was established under its new name, the company opened the 2,000th Kmart department store. Within a decade, Kmart underwent a major amount of growth. The company acquired the Walden Book Company, Home Centers of America, launched the Jaclyn Smith signature sportswear collection and purchased two other stores; the Sports Authority and OfficeMax. In 1990, Kmart also launched a new logo replacing the turquoise-colored “mart” with white lettering but keeping the large, red “K,” making an effort to show Kmart’s commitment to change (see Figure 1 below).

Sixteen years after Kmart’s incorporation, the company acquired Border, Inc. and entered the European market by purchasing 13 store in the Czech Republic and Slovakia. Two years later, Kmart launched a new line of exclusive clothes and swimwear in partnership with Kathy Ireland. That same year, Kmart sold 75 percent of its interest in The Sports Authority, OfficeMax and Borders, Inc. with completion of the sale by 1995.

In 1997, Kmart introduced a new format of stores called the Big Kmart (also known as “Big K” stores) which included the addition of a new logo (please reference Figure 2). In the same year, Kmart also launched a new line of bed and bath linens under the Martha Stewart brand name. Along with the changes in format of the stores and lines offered through Kmart, the company also began offering Kmart Cash Cards; electronic gift cards to facilitate gift giving and gift returns.

From 1998 until 2002 when Kmart filed for bankruptcy protection, the company made many positive strides in reinforcing its position as a discount department store. Within the past five years, Kmart launched an E-commerce website called BlueLight.Com, expanded the Martha Stewart collection, offered a co-branded Kmart/MasterCard credit card, created a sole distribution partnership with Fleming foods, developed a partnership with Disney to sell an exclusive line of children’s clothing and reintroduced the Blue Light Special which had been absent since 1991. By 2001, Kmart had combined BlueLight.Com with the Kmart stores and created an exclusive partnership with JOE BOXER.

Over a period of 25 years, Kmart has made amazing changes in its branding, partnerships, offerings and customer perspective (please refer to Figure 3 for a non-inclusive timeline of Kmart’s progression). Each change has had varying effects upon the company and its position in the industry. Many factors have led to its current state of filing for financial protection. Kmart must now plan for its future by moving forward and by making yet more changes to the company and how it does business.

Section 2: Financial Problems and Marketing Focus

Over the past few years, Kmart has struggled to keep up with its two main competitors, Wal-Mart and Target (Breyer, 2002). The company has tried introducing new products, adjusting store concepts and adjusting prices without success. Kmart’s infrastructure has deteriorated. Their stores are unkempt and under-stocked, giving customers little incentive to continue shopping with them (Chartier, 2002). Since March 2000, Kmart’s stock on the New York Stock Exchange (NYSE) has been suffering compared to its competitors. Over the past two years, Kmart has struggled to maintain a solid stock price and began to suffer greatly in October 2000 (see Figure 4). After that time, Kmart did manage to recover through the holiday season but still failed to meet the profit margins estimated by investors. After the economic downturn in September 2001, Kmart, like many other companies in all industries, suffered greatly. By January 2002, the company had filed for bankruptcy. According to CNNMoney.Com, Kmart’s bankruptcy filing is the largest of any U.S. retailer ever (2002, par. 5).

When Kmart’s financial situation is compared to its largest competitor, Wal-Mart, it is interesting to note how different the two companies are in financial strength. In the chart shown below (Figure 5), Kmart’s stock is shown over a period of five years as a blue line (NYSE symbol KM). For comparison, Wal-Mart’s stock is also shown over a period of five years as a red line (NYSE symbol WMT). Though both companies suffered some losses after September 11, 2001, Wal-Mart’s losses were not nearly as great and the company managed to recover to a status stronger than before the economic downturn. Where Wal-Mart has gradually increased in strength, Kmart has had a few increases but they are greatly outweighed by the decreases in the stock’s price. According to Forbes.Com (an associate of Forbes Magazine), Kmart’s downfall actually increased Wal-Mart’s earnings (Patsuris, 2002).

During the summer of 2001, Kmart announced a planned return to a past marketing price format called the Blue Light Special. The Blue Light Special first appeared in 1965 and was a simple program of in-store, un-advertised specials indicated by an announcement and a blue light atop a pole attached to a shopping cart placed near the Blue Light Special item (Najjar, 2001). The Blue Light Special was an icon that separated Kmart from other competitors and was used for 26 years before being retired in 1991. Kmart promised the returning Blue Light campaign would be the largest marketing push in the company’s history (Najjar, 2001). Where most companies would conduct in depth market research prior to changing to an entirely new marketing philosophy, Kmart chose to dive in head first based upon the assumption that “if the Blue Light Special had worked in the past is should certainly work again.” This lack of research on the part of Kmart leadership proved to be one of the major contributors to the eventual downfall of the company.

Passikof of Brandweek states that Kmart used only its internal data, “K-trends,” to determine its course of action prior to launching the Blue Light campaign (2002). This information would lead investors and consumers alike to believe that Kmart was more interested in its own ideas than developing a well-planned marketing approach based on research and hard data reflecting the needs or wants of consumers. Even though well-researched marketing plans can fail, a company with financial and organizational instability should be sure to do as much research as possible to avoid getting into the situation Kmart is in currently.

Prior to the return of the Blue Light campaign, Kmart was beginning to create a niche in the discount department store industry. With the development of the Kmart image including the Martha Stewart line, Kmart was beginning to develop a customer interested in the specific product lines Kmart offers. Kmart’s home trends line coordinates with items across the store from candles to paint (Stankevich, 2001). Kmart brand clothing was also beginning to pick up and gather recognition among consumers. Kmart’s marketing strategy was structured to concentrate on exclusive brands, such as Martha Stewart; however, “it failed to effectively promote this position” (Howell, 2002). After gathering momentum through brand identity and partnerships, Kmart chose to bring back the Blue Light campaign and enter into a price war with its competitors.

With the return to the Blue Light Special, Kmart redirected focus from its successful brand recognition and partnership to price comparison. Kmart’s number one competitor, Wal-Mart, has earned its place as the number one discount store because of its low prices. With Kmart’s financial instability and success with a different focus, their choice to compare prices with a competitor whose main marketing campaign focuses on low prices seems miscalculated. Low prices have generally been the draw to Kmart’s competitors (Howell, 2001). Kmart was establishing a niche for itself selling names such as Martha Stewart and Disney and failed to realize it.

As well as the introduction of the Blue Light campaign, Kmart also employed a campaign called “Dare to Compare” which compared specific prices on a variety of items with those of Kmart’s competitors. This campaign, however, had a negative impact when Target began claiming that Kmart deliberately misrepresented the prices of Target’s items (Craig, 2001). Since 1995, several states have filed lawsuits against Kmart for price-scanning inaccuracies. Lawsuits have been filed in California, Kansas, North Carolina, Wisconsin and Hawaii (Kamhis, 1999 and Durhams, 2001). Though Kmart can compete on some levels with Wal-Mart and Target, the similarities of Kmart’s Blue Light Special advertising campaign and Wal-Mart’s Roll Back Prices campaign are too strong. Though the Blue Light brings back a strong feeling of familiarity for those who remember the original Blue Light Specials, the competition with Wal-Mart and pricing inaccuracies have been devastating for Kmart.

Since Kmart’s downfall in January of 2002, the company has abandoned the Blue Light campaign and created a new slogan, “Kmart… The stuff of life.” This “stuff of life” slogan is Kmart’s attempt to remind consumers of the variety available at Kmart as well as associate consumer needs with Kmart.

Kmart’s new slogan is also being accompanied by a refocusing on the brands Kmart offers. Though Kmart and the Disney Corporation created a partnership in 2001, Kmart is only now making an effort to capitalize on that partnership.

According to CNN Money, “Kmart continues to scramble to find a niche in a space it once dominated. Wal-Mart stores replaced it as the low-price leader years ago while Target Corp. has captured a slightly more upscale market” (Chartier, 2002). Gary Giblen, food and drug analyst contends, “You can’t switch customers or store operations to everyday low pricing just like that, Wal-Mart succeeded through decades of building trust in their price points.” (Howell, 2002).

Since the bankruptcy, Kmart has vowed to pursue a fast-track recovery. Closing unproductive stores, leaving prime urban locations in markets where the competitors are unable to make inroads, and finding a significant niche in discounting is just the beginning towards the path of recovery. Kmart must “establish a clear brand positioning that that sets it apart from Wal-Mart, with its low-price strategy, and Target, which has defined a trendy, upscale approach.” (Howell, 2002).”

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