Kmart - Bankruptcy Protection Case

On January 22, 2002, Kmart filed for Chapter 11 bankruptcy protection becoming the largest retailer ever to do so in U.S. history. Most industry analysts attributed the immediate cause of the company's bankruptcy filing to a dull holiday season and stiff competition from WalMart and Target as the chain's more fundamental problem. But competition wasn't the root cause of Kmart's consistently poor performance. The real reason for Kmart's poor performance is that Kmart never had a marketing strategy. Kmart completely misunderstood its market and was positioning itself in the wrong direction. Also, on the strategic side, there are issues of where stores were located. On the whole, Kmart stores did not seem to be sited as well as the stores of the competition. Then there was the issue of technology. While Wal-Mart was becoming the relentless efficiency engine that we know today by investing in technology and streamlining the supply chain, Kmart held back. As Wal-Mart developed an infrastructure that enabled it to lower prices, Kmart slipped into a price disadvantage. This paper discusses these strategic problems that led to Kmart's poor performance.

The first Kmart store was opened in Garden City, Michigan., in 1962 (the same year that Wal-Mart and Target began operations) by the S.S. Kresge Co., a five-and-dime chain that was founded at the turn of the 20th century in Detroit by Sebastian Spering Kresge. By the end of 1963 Kmart had 63 stores converted from Kresge's. By 1977, Kmart generated nearly all of Kresge's sales, and the company changed its name to Kmart Corp. Kmart sold the remaining Kresge stores in 1987.

Kmart's greater problems stem from its poor brand strategy and negative image among consumers. In 1965, Kmart introduced the technique that was to become its trademark - the "Blue Light Special." Shoppers in a Kmart would hear the words, "Attention Kmart shoppers." Somewhere in the store a blue light would start flashing. From all over the store, shoppers would race to the Blue Light area to get special discount prices, usually on closeout merchandise. The limited-time sale strategy gave Kmart an identity. In 1991, Kmart discontinued the Blue Light Special, saying it had become too campy. In fact, it was Kmart's dirty, unkempt stores that generated that reputation. Kmart had a chance to revive the BlueLight in 2001. That concept was so powerful that ten years later, when the concept was re-introduced (too late), almost two-thirds of Americans recognized the Blue Light Special and associated it with Kmart. Even more, 93% of those who recognized it had a positive image of Kmart. However, the BlueLight failed to spark any significant sales when Kmart reintroduced it with a $25-million marketing splash. It was a case of too little, too late.

Decades ago, Kmart used to stand for low prices and convenience because it had thousands of locations, retail experts say. But Wal-Mart edged it out on price, and long lines and lots out-of-stock items made Kmart a hassle to shop, the opposite of convenience. Today, with the exception of its Martha Stewart housewares collection, Kmart resonates with consumers mostly as a dingy place to shop, hardly an image to build on when going head-to-head with the country's two discount titans.

In 2001, Kmart's strategy was to turn KMart into a low price, every day destination. To become the low price destination, Kmart cut back its primary method of Sunday Cirulars as much as 50% in September and October with no clear alternative strategy. As it turns out, it was those Sunday circulars that brought in the customers. As Kmart cut back, the competition brilliantly pumped up their advertising. Once the ad budget was reinstated, market share had evaporated.

Wal-Mart positioned itself as the unequivocal low-cost discounter with superior service and super-efficient supply-chain management that kept costs down. Target emerged as the mass merchandiser that did not have everyday low prices but made up for it with bright, well-stocked stores and a splash of style. It was not clear where Kmart fitted in. Kmart did not have a clear, consistent strategy.

Historically, Kmart depended on the WalMart's focus of expanding into rural markets--places where other retailers did not go--and Target's on regional markets to maintain its market share. Other than just being in the market, Kmart did little to protect its geographic advantages. Though the company continued to open new stores and bought several specialty chains, including sporting goods, office supplies, and books stores, conditions at existing locations declined as cleanliness, service quality, and the selection of merchandise all became problems.

Thus, when WalMart and Target inevitably entered into Kmart's territory, Kmart had given its customers every reason to go someplace else.

The marketing moves Kmart made in an attempt to regain market share in the 1990s proved to be unrelated, isolated events. Kmart converted stores to the "Big Kmart" format--larger and brighter stores with more categories of merchandise and signed an exclusive deal to distribute Martha Stewart's line of products--bed and bath fashions and house paints created by the famous home and garden icon. But the same inventory and service problems still persisted, and--unless you had to have a Martha Stewart bath mat--there was no reason to go to Kmart.

The failure of Kmart is clearly a failure of marketing. Kmart's brand-building strategy is much harder to pull off than it sounds, and pitfalls abound. Moreover, Kmart's strategic position won't be saved by brands alone, unless the Kmart finds a way to stand for something all by itself.

Kmart's problem is while they have some nice pieces, it's an oddity that they're at Kmart. First, they have to establish what they're all about.

Technology

In 1987, When Joseph Antonini became CEO in 1987, he announced a $1 billion investment in faster technology adoption. But Kmart never used the technology it had to its full potential, Carlson says. The data warehouse could have been used more aggressively to forecast demand, but Kmart's merchandizing executives preferred to trust their own judgment. At the very least, historical data should have been used to determine which