Kmart Essay Example For Students

Kmart Essay KMART CORP. A SEASONED PERFORMER The venerable retailers bid to recoup its fortunes includes a system that overhauls the management of highly profitable seasonal merchandise BY MEGAN SANTOSUS For retailers, the effective management of seasonal merchandise is a delicate proposition. The selling window is of limited duration and the goal is not to get caught with too much-or too little-inventory at the wrong point in the seasonal cycle. Take Christmas items. If there were no tinsel or wrapping paper or spare tree lights on the shelves the week before Christmas, customers would head for the exits. But if, on Dec. 26, the shelves were still well-stocked with these items, that too would be egregious. And, because of the shorter selling season, the profit margins are kept higher on seasonal items than on regular stock; so, when it comes to maximizing profits, the balancing act between supply and demand is all the more crucial. If at first blush all that tinsel doesnt seem like such a big d eal, it can definitely add up. For ESPRIT Award honoree Kmart Corp., holiday merchandise totals some $2 billion-and Kmarts Seasonal Merchandise Management System (SMMS) currently handles only a fraction of the seasonal goods Kmart sells. (The inaugural project was limited to holiday items; it was recently extended to include back-to-school merchandise, and there are plans for further expansion.) The universe of seasonal retail merchandise is potentially quite broad and might include such items as snow blowers, lawn mowers, bathing suits and bags of peat moss. Kmart, however, declines to reveal the total percentage of revenues for which its seasonal inventory accounts. According to David M. Carlson, Kmarts senior vice president of corporate information systems, managing seasonal inventory perfectly would mean the last customer who wants a particular item will find the last one in stock. Editors note: After this article was reported, Carlson was shifted out of Kmarts top IS spot to ot her unspecified duties, reportedly because of dissatisfaction over problems plaguing Kmarts inventory replenishment systems. While perfection is elusive, Kmarts use of client/server-based technology to fine-tune seasonal merchandise management and centralize decision making at its Troy, Mich., headquarters is paying off big. Through fiscal 1996, Kmart projects a total return from SMMS in the neighborhood of $240 million. Not bad for an investment of roughly $2.5 million. Kmart could certainly use the money. Earnings at the $34 billion-a-year discount department store chain have been plunging lately. The company recently announced a restructuring effort that calls for closing 110 stores and eliminating 6,000 jobs. But many retail analysts contend that shedding unprofitable stores alone will not cure all of the companys ills. If Kmart hopes to regain healthy earnings, it must reduce overhead in existing stores and further exploit the strategic use of information technology, according to Seth Kranz, a management consultant with CSC in Newton, Mass. SMMS is a step in the right direction. By providing buyers and planners at headquarters with daily sales and inventory data, the system has transformed the way Kmart manages the seasonal goods in 2,350 stores in the United States. Inventory and pricing decisions are now based on sales performance at the individual stores. As a result, Kmart can maximize profits by preserving full price-and gross margins-in stores where seasonal items are selling at or above plan. In stores where sales are lagging, the company can tailor an appropriate merchandising strategy to eliminate inventory by seasons end. Since implementation in fiscal 1992, the system has improved seasonal merchandise sell-through-the total number of items sold divided by the total received-by 5 percent. While that may not seem like much, selling more seasonal merchandise at the optimum profit margin, rather than at a loss or at break-even, translates into mill ions of dollars. In 1992 and 1993, higher sell-through rates on seasonal merchandise accounted for incremental profits of $28.9 million and $37.2 million respectively. Historically, Kmart managed seasonal merchandise chainwide, measuring total sales against total purchase orders. Chainwide markdowns were mandated when sales fell behind plan. This blanket approach meant there was no rational link between local prices and local demand. Thus, the needed stimulus of a price promotion in stores where sales of an item were slow became a drain of profits out of stores where sales were brisk. Worse, in stores with high demand, the discounted price led to premature depletion of inventories, causing shelves to empty before seasons end. And moving merchandise between understocked and overstocked stores in time to do any good was both costly and logistically difficult. District managers manually took inventory at each store, explains David A. Wegscheid, the divisional vice president of merchand ising. There was no practical way to figure out which items could be transferred by eyeballing the stuff. Even if it was known that a store was running low on an item, it took too long to scour the reports to locate stores with surpluses. It fell to Joseph G. Lichocki, a project manager in corporate systems development, to work with Kmarts merchandising group to link price to demand on a store-by-store basis. Lichocki was familiar with the frustration felt by planners and buyers. In 1987, Kmart had acquired a massively parallel relational-database server from Teradata (now an NCR division of ATT Global Information Systems). It was used to process sales, purchase-order and inventory data. But there had been no easy way to view the data. While hefty weekly reports were produced, merchants had to flip through hundreds of pages to find what they wanted. What merchants needed was daily sales information that could be easily manipulated so that action could be taken in time. Our challenge was managing the volume of data while providing our end users with ultimate flexibility, says Lichocki, the architect of the SMMS. We had the Teradata, but we werent sure how to make the data fingertip ready and useful. According to Lichocki, the system had to recommend, execute and track action on behalf of merchants. Any system with those capabilities, he asserts, will provide a return. Still, it took a bit of effort to forge a productive partnership between the IS and merchandising groups because, as Wegscheid diplomatically explains it, merchants and systems worked separately before. However, because SMMS was Kmarts first venture into client/server computing, developing it required both groups to work closely together. The IS group enhanced its credibility with the merchandising group considerably by quickly demonstrating the benefits of client/server; the first release of the SMMS was delivered in six weeks using prototyping and rapid system development techniques. Thanks in p art to this approach, Wegscheid reports that IS and merchandising regularly work together and now enjoy a productive and cooperative partnership. SMMS features NCR workstations linked to the central Teradata via the corporate Novell LAN. Overnight sales and inventory data from each store is automatically uploaded to the database. In the morning, buyers and planners at corporate headquarters and merchandising coordinators at regional sites can quickly assess the status of seasonal merchandise by using intuitive GUIs to drill down into the huge database. For example, a coordinator wondering whether a merchandise transfer could eliminate understocking in one store and overstocking in another can execute a query that graphically identifies the appropriate stores and merchandise and notifies local store managers to take action. Buyers and planners can view sales performance at a variety of levels, including item, department, store and region. An interface with an existing system also let s merchants analyze performance based on specific store attributes; if anyone wants to know how Easter baskets are faring at stores in college towns, SMMS will provide the answer quickly. Every morning, my buyers can see exactly how many pieces have been sold, where they have sold and at what price, says Wegscheid. In addition, the system lets merchants better manage merchandise to meet sales targets. If the target stipulates an 80 percent sell-through three weeks before the season ends, a store at 40 percent can transfer merchandise, reduce prices, even change the way merchandise is displayed. (One buyer tracked the sales of inflatable pool toys and saved $300,000 by avoiding a shipment of merchandise that would have resulted in severe overstocks.) We now manage every item end-to-end, from the decision to buy it and stock the store, until it is sold to a-hopefully-satisfied customer, says Wegscheid. Technical Profile Old System: Weekly paper-based reports generated from the NCR/Ter adata DBC/1012 database server via a 3278 terminal New System: The client/server-based Seasonal Merchandise Management System (SMMS) Hardware: NCR Teradata DBC/1012 relational database server that stores and processes sales and inventory data; DOS-based NCR 3330 486 workstations with color monitors; three MVS mainframes for transferring sales and inventory data every morning. Software: Packaged software on workstations include DOS, Microsoft Windows, Microsoft Excel and Win/CLI, which allows communication with the Teradata server. SMMS was developed using the Asymetrix Toolbook language. Communications: Novell Token Ring local area network links client workstations with the Teradata server. Remote users in the United States have transparent access to the LAN via Kmarts satellite communications system. All content copyright CXO Media Inc., 1994-2001. All rights are reserved. No material may be reproduced electronically or in print without written permission from CXO Media, 492 Old Co nnecticut Path, Framingham, MA 01701Santa Barbara News-Press (Santa Barbara, California) (via Knight-Ridder/Tribune Business News), March 12, 2005 pNATargeting a new look: Troubled Kmart undergoes a massive makeover. Full Text: COPYRIGHT 2005 Santa Barbara News-PressByline: Maria Zate Mar. 12If you cant beat em, imitate em. Thats the war cry of discount retailer Kmart these days as it struggles to keep up with its trendier and more popular rival, Target. To reinvigorate sales and shopper interest, Kmart apparently has pulled out the manual that Target used to transform itself from frumpy to hip. Tidy-looking stores, a streamlined Web site and fun, design-conscious products form the elements of Kmarts massive makeover. South Coast residents may not recognize the Kmart in Goleta when it completes a major remodel next month. The store at 6865 Hollister Ave. is one of nine locations in the chain currently morphing into a new, improved Kmart that shoppers say looks more like a Target. Changes at the Goleta Kmart started in January and include the shuffling of aisles and departments to air out the store that once had the feeling of a cluttered walk-in closet. And employees who were often hard to find n ow pop up in nearly every aisle, eager to offer assistance. Santa Barbara resident Mignon Bradley said she has absolutely noticed the changes. On a recent afternoon, she had stopped at the store to buy a small glass-topped table to prepare for a family dinner party. The most positive change is the demeanor of all the employees. Its like night and day. Its a pleasure to shop there now, Ms. Bradley said. Theyve obviously done a lot of employee training, and theyve cleaned it up a lot. It was yucky in there before. Creating an open view at the entrance and a fresh look was one of Kmarts primary objectives when it embarked on the store remodels last year, said Stephen Pagnani, a spokesman for the chain based in Troy, Mich. What customers will see immediately when they walk in is that they have an open view of the store, and its easy to see where everything is and where they need to go to find something. Weve created new signage with brighter colors of oranges and yellows, he explained. Weve also made a number of merchandising changes. In apparel, were going for a more lifestyle presentation where outfits are grouped together, he added. In the furniture area, where things used to be in boxes up on shelves, weve put them on the floor and accessorized them with other items in the store. Kmarts most obvious merchandise change includes the revamping of its private-label home dcor line called Home Essentials. The name has changed to Essential Home, and the line reflects a modern sensibility meant to reel in shoppers seeking an alternative to the traditional looks of the popular Martha Stewart collection. A contemporary color palette and funky patterns dominate the Essential Home items such as kitchen towels, potholders and chair cushions. Streamlined silhouettes and a modern mood show up in bathroom accessories, furniture and lamps. Its no accident that Essential Home feels more upscale and hip. Kmart assembled a new product design team last year with executives recruit ed from Gap and the world of Donna Karan. The changes have led some observers to note that Kmart is taking cues not only from Target but from budget-conscious furniture retailer Ikea, as well. Target officials at its Minnesota headquarters declined to discuss Kmarts strategy, citing that it has a policy never to comment on its competitors. Given that the South Coast has neither a Target nor an Ikea, the strategy to fill a void by emulating the absent competitors could work well, industry experts said. If youre going to compete, you need to compete head-on, said Kurt Barnard, a retail analyst and publisher of Barnards Retail Trends Report in New Jersey. I think its a wise move for Kmart to copy what has worked for Target, and theres room in the market for that niche. Mr. Barnard warned, however, that its too soon to tell if Kmarts strategy will work, given the uncertainties created by its impending merger with Sears. Kmart announced last November that it would acquire Sears for $11ab illion, creating the third-largest retailer in the nation, behind Wal-Mart and Home Depot. Shareholders of Kmart and Sears will vote on the proposed merger at special March 24 meetings. No plans have been announced for how the merger would influence the countys handful of Sears and Kmart stores. Sears has locations in Santa Barbara, Santa Maria and Lompoc, while the countys only other Kmart store is in Santa Maria. Competition is growing more intense in the retail industry every day and Kmarts changes are essential to survival, said local economist Mark Schniepp. If theyre copying Target or Wal-Mart, its not just a matter of strategy, its a matter of staying alive, he said. Theyre competing not only with those stores but places like Longs and Rite-Aid and the new Bed Bath Beyond. The local Kmart may soon face even greater heat from the nations biggest big box. Wal-Mart has expressed interest in building a store in Buellton, at the Oak Springs Village shopping center that is in deve lopment. There are already well-established Wal-Marts in Santa Maria and Lompoc, as well as in Oxnard in Ventura County. Developers floated the idea of bringing Target to a parcel near the Santa Barbara Municipal Airport last year, but that campaign died in August when Bermant Development Co. opted to try to bring in another tenant for the site. At this point, it isnt likely that Target would partner with another developer because of the lack of available land. While it may take many years for either Wal-Mart or Target to come to the South Coast, Kmarts moves to copy competitors could be an advantage for local shoppers and the company, said Tracy Pfautch, director of marketing for the Paseo Nuevo Shopping Center. Everybody has wanted a Target here. There was a big campaign to bring the store to the South Coast, and that failed, she said. So there is an identifiable need. If Kmart is trying to rise to the occasion to fill that need, then I think it should work for them and shoppers. You know what they said in that Kevin Costner movie, If you build it, they will come.a To see more of the Santa Barbara News-Press, or to subscribe to the newspaper, go to http://www.newspress.com. Copyright (c) 2005, Santa Barbara News-Press, Calif. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail emailprotected TICKER SYMBOL(S): KMRT, TGTArticle CJ130197835 IDEA Article March 2003:Lessons Learned from KmartBy: Mike RiouxMuch has been written about the downfall of Kmart. Some poignant insight revealed many lessons and strategic miscues in marketing, customer service and purchasing, all of which contributed to the dimming of the Blue Light. Andrew Dietderich in Detroit Business chronicled how Kmart executives waffled between a technology for technologys sake position and an if it aint broke attitude. This ambivalence postponed and deferred technology expenditures as a method to protect short-term profitability and cost Kmart in the long term. The perspective on Kmarts failures may be symptomatic of many industries including the electrical industry: guilty of the same technology avoidance or complacency or even outright Technophobia?What were Kmarts compelling problems, or, what kept them up at night? The short list included depressed margins and sagging prices, stagnant inventory turns, overstock at every level, mounting returns, increased warranty claims, and increasingly unreasonable demands from customers. Many of the Kmarts problems or for that matter, any companys problems, are not really problems but are symptoms of a larger, more problematic issue, specifically technology. Have companies individually or collectively spurned the technology that helps make leaps in efficiencies because they dont understand it? We look back to the September 27, 1999 Business Week e.biz Strategies Article by Roger Crockett A Neanderthal Industry Smartens Up, How the electrical-parts biz got the glitches out and wonder how much progress has been made in the electrical industry? A large percentage of manufacturers and distributors still dont understand the purpose and objectives of e-commerce, IDEA, IDX2 and the IDW, or fear the investment, or thought what they were doing was good enough? Is the electrical industry guilty, like Kmart of neglecting that, which can help us? Is supply chain technology the cure of what ails us? We should always be careful not to place too much faith in any technology. It is, after all, people who ultimately solve problems, but the short answer is, Yes, along with a caveat. Consider how supply chain technology can address the myriad of symptoms. Overstocks are typically the result of benign or passive neglect in inventory management. They result in stagnant inventory turns, especially in slow-moving parts. Clearly, this is an area where supply chain software can truly shine. Software that projects future demand based on historic usage has been around for years. What is exciting is the ability of new applications to consider a greater range of factors in developing an inventory projection. Software that, for example, resides on a server between trading partners has the ability to consider circumstances and factors of both the buyer and the seller. It can also schedule shipments in accordance with production schedules, availability of inventory, even the schedule of freight carriers. Todays systems can quickly and easily perform countless sophisticated, algorithmic calculations over and over, continually refining themselves. Buyers and stock managers just dont have the time to do as good a job as todays technology can do. The application of this sort of technology routinely serves to improve stock profiles, improve inventory turns or both. Mounting returns, increased warranty claims and unreasonable buyer requests are ways that customers are attempting to deal with their problems. These areas have become part of the default strategy of many business people as a way of dealing with the pain of their individual situation. Unfortunately, the pain is added to the next step in the supply chain. Jay Ferron, a Price Waterhouse financial analyst, described this phenomenon as the strategy of squeeze. This is an insidious behavior where everyone in the channel bangs on anyone above them or below them in an attempt to find relief from their problems. You probably experienced it, some times as the squeezee, sometimes as the squeezor. The manifestations of squeeze come in the form of: insisting on returning more than the stated sales policy under the threat of changing suppliers, in demanding price and discount concessions or extended terms, even as increased alleged defectives that are nothing more than stock adjustment returns masquerading as warranties. The problem is that while reaching out to others is the right thing; we arent doing it in the right way. Squeezing vendors or customers for relief in an effort to compensate for our own problems or shortcomings is a self-fulfilling prophecy. The implementation of effective supply chain technology can and will address the roots of these problems. Effective supply chain technology prevents inventory from getting out of whack by performing an ongoing daily inventory analysis against history, usage, even statistical models factoring product builds and failure rates. Its not some kind of magic business bean as the current IBM TV advertisement explains, just the ability of systems to perform countless mechanical calculations over and over that buyer and stock managers just dont have the time and patience to do. When stocks and net sales are analyzed daily, parts that are not going to sell are not reordered. When small returns are made regularly, store and distributor inventories never get so far out of whack that huge returns, or surreptitious warranty claims (returns) or other outrageous demands are required. Accountability Of Our Government EssayKmart was the first major discount merchandiser in the United States, and enjoyed the first mover advantage for several decades. Wal-Mart and Target started in the 1960s, and at this point both have by-passed Kmart on a number of strategic measures. Wal-Mart has a formidable advantage in its position as the low price retailer for the merchandise it features in its stores. Moving forward, it can selectively exploit the weaknesses that Kmart currently faces, and expand its store categories to further meet its customers needs, such as the need for grocery products. Flawless execution of strategy is imperative in this category. Target and Wal-Mart not only understand the need for a clear strategy, they also execute it. Kmart does neither of these well at present Target positions itself as providing higher-end, higher-image merchandise at prices lower than found at boutiques or main line department stores. It can take advantage of the confusion of Kmart shoppers who react favorably to the Martha Stewart labeled products, but do not find the total shopping experience at Kmart to be consistent with the store branded approach Target has taken. Kmart is in trouble. It has been squeezed by these two well-run competitors, and is struggling to figure out how its value proposition compares with that of Wal-Mart and Target. It has some loyalty among the urban and minority groups of consumers which its competitors have avoided, but needs to develop a complete strategy that effectively serves these targets. Moving beyond the groups that Kmart owns, the company should selectively operate stores where it can profitably compete with Wal-Mart and Target, and exit markets that Wal-Mart and Target together dominate. At the end of the day, most consumers come out as winners in this category of shopping. The exception may be the urban shopper, for whom Kmart has been the primary retailer, while being carefully avoided by Wal-Mart and Target. Flawless execution of strategy is imperative in this category. Target and Wal-Mart not only understand the need for a clear strategy, they also execute it. Kmart does neither well at present, and must develop a clear point of differentiation from its competition, and re-tool its operations to support the re-positioned entity. There is a great opportunity for Kmart if the management team creates the right strategy and deploys, manages and evolves the appropriate business models. STRATEGY EVOLVEDThe discount merchandising category is growing by gaining greater share of wallet (process share) from the mall stores and conventional department stores, so Kmart is in an even more ironic position of being a losing player in a winning category. In the next 2 to 4 years , both Wal-Mart and Target can continue the strategies they have developed, and achieve same store expansion along with new store growth merely by gaining disaffected Kmart customers. Kmart is struggling for an identity and for survival. It does have a niche market of urban shoppers and minority groups that it can continue to own, but it will likely find itself attempting several different strategies with this audience before settling on one that stabilizes it financially. Both Wal-Mart and Target will likely take advantage of their respective positions during the Kmart mayhem, and take initiatives that extend them beyond their core strategies. Wal-Marts approach will be more ambitious and far-reaching. It will expand the sizes of its stores, and undertake a more aggressive effort to introduce new lines of merchandise, particularly grocery items. While Kmart met its comeuppance employing this approach, it is expected that Wal-Marts deeper management capacity and powerful information systems will enable it to execute this more effectively than did Kmart. It will also expand its exclusive store brands to more departments of the store. It will leverage the Internet to improve its logistics operations, giving it an even better window both from the point of sale and to the suppliers, improving the connectivity between inventory purchased and produced. Since Target is a smaller entity than either Wal-Mart or Kmart, it will get a proportionately higher boost in sales growth as a result of the Kmart malaise. It will continue to develop its exclusive store brands, that will expand its initiatives of working with branded and fashion label manufacturers to develop lines of products that are sold exclusively at Target. Compared to Wal-Mart, Targets evolved strategy will be more focused and incremental, and the company is less likely to aggressively move into entirely new categories of merchandise or expand geographically outside of the suburbs. The question for Kmart is as much Can it survive? as How can it survive? It suffers from a number of structural disadvantages, only some of which can be eliminated during the time in which it is in bankruptcy protection. Announced plans to target urban minorities as its primary audience may make sense, but it has significant implications for the types of products featured in stores. While many of the brands and merchandise appeal equally to all target audiences-household cleaning products, for example-there is ample market research that shows that a store designed to cater to different minority groups must feature and promote merchandise that has specific appeal to these groups. This presents a different business model challenge for Kmart, and it will require its management to re-tool thinking and business practices that have been ingrained in the company for dozens of years. It is unclear whether the leadership will formulate the vision and execute it, since the companys current man agement comprises turnaround executives with expertise in getting out of bankruptcy, rather than niche merchandising. Although the vision appears to be the right one, Kmart is further handicapped since it cannot fully focus on it until the bankruptcy issues are behind it. To summarize its dilemma, Kmart lacks the operational and low cost position of Wal-Mart, the product innovativeness of Target, and doesnt appear to have gained a good understanding of the customers it serves, as is exhibited by its varied merchandising approach. STRATEGY MANAGEDWal-Mart is generally recognized for a number of best practices. Target is also a largely well-run operation. Kmart remains the also ran of the three. Since it positions itself as a low cost provider, Wal-Mart has been ruthless in controlling its main cost areas: personnel, cost of goods sold, distribution, and real estate. Store employees are paid just slightly above minimum wage, and it is entirely a non-union shop. Yet, in many locations, Wal-Mart is the employer of choice, since it provides more employee benefits and a better work environment compared with other job options in the area. The employees, called associates, are generally a highly motivated group, thanks to the family style of store management that is part of the company culture. This enables store managers to use employees more flexibly, without the resistance or unionized workforce rules that can be found at other retailers. The buying power the company has by virtue of the volumes it orders has enabled it to negotiate the best terms from the manufacturers with which it does business. It also makes sure to purchase merchandise from countries and locations that ass ure the lowest total landed cost at any given time, and will adjust the volumes it orders from suppliers opportunistically to keep this low cost position. Wal-Marts distribution system in North America gives it another significant cost advantage. It strategically locates distribution centers to support clusters of stores, and uses state of the art automation to manage and move inventory from these centers to the stores. It has forged deep and long-term strategic alliances such as JB Hunt for truckload carriage of freight, and Union Pacific for moving containers and trailers by rail. Data from its point of sale systems at the stores are captured in real time and transmitted to company headquarters to determine trends, merchandise turns and other key metrics. Consequently, Wal-Mart is very effective at minimizing slow turning items, and leveraging information about products that are performing particularly well. Since it located its initial stores primarily in non-urban areas, or the outskirts of town, the cost of land and related expenses such as taxes, utilities, roadways and other infrastructure are also relatively lower, and sometime s subsidized by the local communities via business development funds. While Wal-Mart has more recently moved into suburban locations, it has fundamentally stayed away from putting stores in dense inner city venues. So while its real estate costs for some of its newer stores may be greater than the stores it developed earlier in its history, it continues to avoid high-end commercial real estate investments. Targets relative cost position does not match Wal-Marts. Since Target tends to locate its stores in suburban areas, has a different merchandising strategy, and has fewer stores than both of its competitors, all the key cost areas are greater relative to Wal-Mart. This higher cost position is offset by its strategy of offering what are perceived to be more upscale, and, consequently, higher margin goods. The store is able to do this because many of the lines of merchandise it offers are perceived as competing with department store and shopping mall retailers, which generally charge higher prices than does Target, for the lines they carry. Kmarts recent filing for bankruptcy, and announced plans to lay off 22,000 employees and close at least 284 stores provides ample evidence that the company has a cost management problem. There are problems in each of the key cost components of its operations. With its tendency to locate in more urban areas, and with some parts of the company unionized, Kmarts personnel costs tend to be higher than either of its competitors. Employee turnover also tends to be higher, since these jobs are still low paying compared to non-retail jobs, and opportunities in denser areas for better paying employment are somewhat better for qualified workers. Kmarts scale should provide it with a strong hand in negotiating favorable prices for its merchandise, but it seems to have taken some mis-steps when compared to Wal-Mart. In particular, the company is closing down many of its Jumbo stores that sold grocery items in addition to the dry goods found in its traditional stores. So while the concept of getting greater share of wallet from a Kmart shopper had a certain appeal, Kmarts operations were not tuned appropriately to handle perishables and non-dry goods, along with its traditional lines of merchandise. As mentioned earlier, Kmart also suffers from the problem of using Targets approach of merchandising with its Martha Stewart product lines, and using a low price approach for the other lines in its stores. This mixed message appears to have confused customers, and needs to be carefully examined by the company leadership as it transitions from bankruptcy. Kmarts automation and distribution system is also quite formidable, but Wal-Mart appears to have a stronger management group overseeing this portion of the operation, and simply does a better job of keeping costs low and leveraging information more effectively to keep a high inventory turn ratio. Kmart tends to have relatively more stores, than does Wal-Mart, in the Northeast and Upper Midwest, where winter weather conditions can contribute to greater costs of doing business as compared to the Sun Belt, where Wal-Mart has a disproportionately higher presence. With a more urban skew toward its store locations, Kmart faces other cost disadvantages in addition to personnel costs. Costs of real estate, local taxes, and developing and maintaining support infrastructure for urban stores are greater than for a store found in a less dense location. To summarize its dilemma, Kmart lacks the operational and low cost position of Wal-Mart, the product innovativeness of Target, and doesnt appear to have gained a good understanding of the customers it serves, as is exhibited by its varied merchandising approach. STRATEGY DEPLOYEDThe discount merchandising business is huge, and consequently can be divided into various segments for analytical purposes. Geography, target demographic groups, and merchandise offerings are key to this category. Geographically, Wal-Mart took more of a rural focus, Target stores tended to focus on suburban locations, and Kmart historically concentrated its stores in denser urban areas-all three companies providing greater selection and lower prices to people who previously had only local retailers or shopping malls for their shopping needs. Over time, each company has muscled into the others territories, so it is common to see two, or even all three, of these retailers located in close proximity to each other in different communities, especially in suburbia. While at a high level, the participants served by all the three companies are the same (retail consumers), the target demographics have different roots with each retailer. While Wal-Mart has positioned itself toward families with children and Target has focused on younger women (ages 25-40) and teenaged girls, Kmart tends to reach out more toward minorities and others who are found in greater proportions in urban areas (in fact, Kmart has recently announced a renewed effort to reach this audience.) While these target groups also overlap to various degrees, there are distinctions found in each which the stores attempt to leverage. In terms of the respective companys merchandising process, Wal-Mart takes a consistent low cost provider position and selects products that meet this formula. Target positions itself as offering higher end and unique merchandise and fashion items at more affordable prices. Both companies are very effective in understanding what appeals to their customers (the discover component of Process in the Value Framework), negotiating effectively with their suppliers to develop product offerings that meet their overall missions, and performing quite effectively at the store level in managing the merchandise and promoting it to its shoppers. Kmart finds itself being squeezed in by its two merchandising competitors. For example, its Martha Stewart lines of household products would suggest a strategy that parallels Targets. However, since it tends to serve lower income households, their target audience is highly motivated to get bargain prices. Since its distribution system is less cost effective than Wal-Marts, Kmarts margins are severely eroded when it attempts to compete head-to-head with Wal-Mart on price. It is unclear how good a fit the Martha Stewart image is for the urban, minority audience that comprises an estimated 39% of Kmarts current revenues. This may become even more problematic for Kmart as it re-trenches by shutting down suburban stores and intensifying it marketing efforts to reach this audience. Whats more, both Target and Wal-Mart have taken the Martha Stewart approach to certain lines of merchandise. For example, Wal-Mart now offers the Mary Kate and Ashley line of clothing and accessories for teenaged girls. Target has used its attractive red logo to develop Private Label lines of merchandise with a distinct, somewhat irreverent personality. Target also features clothing categories with designer names that sell in higher end fashion boutiques with different lines of merchandise. More important is how these companies are using the Internet to manage their vendors across the supply chain. All three companies have Internet sites and provide e-commerce for their customers. From a functionality standpoint, there appear to be more similarities than differences among them. Each company has taken a different approach to how its Web sites are organized. Wal-Mart.com is a joint venture between Wal-Mart and the venture capital firm Accel Partners, and operates out of Silicon Valley, not in Wal-Marts Arkansas headquarters. Kmart has had several different approaches for its BlueLight.com site, and although it remains based in San Francisco (Kmart is headquartered in Michigan), more of the strategic decisions are now being made in Troy. Target from the start has kept its Web operations at its Minnesota headquarter offices, and has not attempted to create a stand-alone entity as its two competitors originally have. More important is how these companies are using the Internet to manage their vendors across the supply chain. All three have significant initiatives to take advantage of this opportunity. Wal-Mart is furthest along, and uses its larger scale to leverage its vendors to do more business with it via the Internet. Since the fashion and design component of Targets merchandise is a critical part of its stores strategy, design collaboration with its vendors, and inventory management of these items is the most sophisticated part of its Internet strategy. Kmart is also increasing its investment and commitment to the Internet, and it can actually take advantage of its competitors efforts as they are often the groundbreakers for the same vendors that Kmart does business with. FOURTH-QUARTER PROFIT INCREASED 14 PERCENT AT KMART. (Business/Financial Desk)(COMPANY NEWS)(Brief Article)Full Text: COPYRIGHT 2005 The New York Times CompanyKmart said yesterday that it posted a $309 million profit in the fiscal fourth quarter, a 14 percent increase over the period a year earlier. The retailer, which is expected to soon complete its acquisition of Sears, Roebuck, said that sales at stores open at least a year, or same-store sales, fell but that the pace of decline was less than in the two previous periods. Kmart, based in Troy, Mich., earned $3.09 a share in the quarter ended Jan. 26, compared with $2.78 a share a year earlier. Revenue fell 7 percent to $5.9 billion. Same-store sales, which are considered a good measure of a retailers health, declined 4.5 percent. Kmarts 10 Deadly Sins. (Editorial)(Book Review)Tony Lisanti Full Text: COPYRIGHT 2003 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission. The latest retail book to be released is the fourth major book so far this year that focuses on the nations largest and most prominent retail companies. Over the past several months, books have been released on Wal-Mart, Target and Best Buy (see DSN Retailing Today, June 18, page 11) that were all positive stories about successful retail strategies oftentimes providing a solid historical perspective and business insight with little mention of controversial issues. The latest book, Kmarts 10 Deadly Sins: How Incompetence Tainted an American Icon, by Marcia Layton Turner (Wiley), is quite obviously from its title the complete opposite to the aforementioned books. In fact, the preface begins asking the question Where did Kmart go wrong? as the author points out that this is the central question she tries to answer for myself and others seeking to understand how an industry pioneer became a laggard. Turner then asks, What caused the companys prospects to become so bleak that bankruptcy p rotection was the only answer? Some say the answer is Chuck Conaway Out of what looks like pure greed, former managers pushed Kmart into bankruptcy by draining the corporate coffers, in the process giving themselves extensive compensation packages and embarking on ill-advised price wars. Well, the opening salvo of the book quickly sets the tone for readers and has them immediately immersed in the downfall of Kmart and clamoring for more of the sordid details. Unfortunately, Kmarts 10 Deadly Sins never really fulfills that initial interest the author creates for the scintillating details, but instead it falls into a rather mundane second- and third-hand account of the oftentold stories of the problems that Kmart faced throughout its history. It extols the what ifs and rehashes the coulda, shoulda, woulda syndrome. Turner, who is also the author of The Unofficial Guide to Starting a Small Business, no doubt did her research and obviously spent hundreds of hours interviewing retail ex perts as well as searching news archives. Her due diligence is immediately apparent as Chapter One, entitled Br