Tired Brands: Kmart
A brand on the brink
One of the United States’ largest chain of discount stores, Kmart filed for bankruptcy on 22 January 2002. The action came after poor Christmas sales and the company’s inability to pay its major suppliers. The bankruptcy filing was viewed by the US business media as the culmination of a series of mistakes under Kmart’s CEO Chuck Conaway, who took over in May 2000 and launched a US $2 billion overhaul to clean up dingy stores and improve the company’s outdated distribution systems.
These distribution flaws had led to many of Kmart’s most publicized ranges not being found by customers. For instance, when Martha Stewart launched her ‘Keeping’ line of brand merchandise exclusively for Kmart in June 2000 she had to tell customers: ‘If you’re frustrated, keep looking.’
While facing an uphill battle with distribution, Conaway embarked on a price war, challenging rival stores Wal-Mart and Target on price. The tactic failed. Wal-Mart fought back even more aggressively, Target sued, and Kmart sales remained disappointingly stagnant.
Conaway was also criticized for drastically cutting Kmart’s advertising spend. Analysts believe he should have used advertising to tell consumers about the expensive clean-up operation. Kurt Barnard, publisher of Barnard’s
Retail Trend Report said:
I was very apprehensive when Chuck inherited Kmart and its creaky operations. But he did the right thing by diverting hundreds of millions to the stores in cleaning them up. Trouble was, he failed to let 270 million shoppers know that Kmart is a new store for the American family. Meanwhile, 270 million American shoppers kept nursing the image that Kmart was a dirty place and had too much stock.
Whether or not Kmart will be able to recover from bankruptcy and take on its stronger-than-ever rivals remains to be seen.
Lessons from Kmart
One of the United States’ largest chain of discount stores, Kmart filed for bankruptcy on 22 January 2002. The action came after poor Christmas sales and the company’s inability to pay its major suppliers. The bankruptcy filing was viewed by the US business media as the culmination of a series of mistakes under Kmart’s CEO Chuck Conaway, who took over in May 2000 and launched a US $2 billion overhaul to clean up dingy stores and improve the company’s outdated distribution systems.
These distribution flaws had led to many of Kmart’s most publicized ranges not being found by customers. For instance, when Martha Stewart launched her ‘Keeping’ line of brand merchandise exclusively for Kmart in June 2000 she had to tell customers: ‘If you’re frustrated, keep looking.’
While facing an uphill battle with distribution, Conaway embarked on a price war, challenging rival stores Wal-Mart and Target on price. The tactic failed. Wal-Mart fought back even more aggressively, Target sued, and Kmart sales remained disappointingly stagnant.
Conaway was also criticized for drastically cutting Kmart’s advertising spend. Analysts believe he should have used advertising to tell consumers about the expensive clean-up operation. Kurt Barnard, publisher of Barnard’s
Retail Trend Report said:
I was very apprehensive when Chuck inherited Kmart and its creaky operations. But he did the right thing by diverting hundreds of millions to the stores in cleaning them up. Trouble was, he failed to let 270 million shoppers know that Kmart is a new store for the American family. Meanwhile, 270 million American shoppers kept nursing the image that Kmart was a dirty place and had too much stock.
Whether or not Kmart will be able to recover from bankruptcy and take on its stronger-than-ever rivals remains to be seen.
Lessons from Kmart
- Realize that price gimmicks won’t win long-term customers. ‘The problem was that Wal-Mart and Target were out there pitching low prices, broad inventories, hip products, and pleasant shopping experiences while Kmart was banking everything on random in-store discounts,’ reported Business 2.0 magazine. Kmart needed to communicate a reason for consumers to shop there – and shop often.
- Don’t neglect advertising. A retailer undergoing a great deal of change needs to tell the public about it on a regular basis. Instead, Kmart cut its newspaper advertising.
- Be better than the competition. This is a tough challenge. Wal-Mart is a retailing giant, while Target has been called ‘quite possibly the best run company in the world,’ in Sam Hill’s book on branding, The Infinite Asset.
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