Magazine Article | March 1, 2002

Where Did Kmart Go Wrong?

Source: Innovative Retail Technologies

Retailers need to differentiate themselves and cater to a specific and loyal customer base to compete in today's marketplace.

Integrated Solutions For Retailers, March 2002
Stephanie Roussel-Dupre

It is becoming clear that there are more stores than there are people to shop. So, what's your retail survival plan? At the January National Retail Federation (NRF) 91st Annual Conference & Expo in NYC, the state of the economy sparked a historical discussion. A session-goer pointed out that big department stores of the 1930s turned stores into entertainment centers to differentiate themselves in the suffering market. Stores of the 1930s gave lessons on cooking or fashion, thus giving customers a reason to come into the store even if they didn't have the money to shop.

This interesting tactic came to mind when Kmart filed Chapter 11 in January. Stuck at number three behind price-slashing Wal-Mart and trendy-assortment-carrying Target, Kmart struggles to differentiate itself among discount consumers. Supply chain inefficiency and lower-than-expected 2001 sales forced Kmart to reevaluate its processes with the hopes of emerging from bankruptcy in 2003. But a lot has to change if Kmart is going to get out of the red in only one year.

Base Assortment On What Sells
Part of Kmart's reorganization plan includes investing in key merchandising and marketing initiatives by offering exclusive brands not offered by its competitors. Martha Stewart and Kathy Ireland products were a start, but there needs to be more to merchandising and marketing than brands. Retailers need to know who their customers are and, at the very least, what they are buying.

In a conversation with Randy Covill, senior retail analyst at AMR Research, he mentioned Wal-Mart has its data mining techniques well mastered. "After September 11, Wal-Mart was mining its national sales data and discovered that people were buying flags in massive quantities. So, in response, it increased its orders from 500 to 250,000 flags, and the stores had them in place in three weeks," Covill said. "That's efficiency."

Who Do You Want To Shop?
Wal-Mart doesn't know its customers by name, but based on its large volume of sales, it doesn't need to. Retailers who appeal to a more targeted customer demographic have chosen to use CRM (customer relationship management) data and loyalty programs to learn who their customers are and where they live. Kmart could learn a lesson from Chico's, a women's apparel retailer, and this month's featured retailer (see page 36). Chico's challenge was to increase its customer base of women between the ages of 35 and 60 and target specific promotions to them to ensure they continued to shop. The 303-store apparel chain didn't conduct national advertising campaigns, until it used its CRM analysis to identify the ZIP codes and TV shows to best reach its target audience. Only three years after implementing a CRM solution, its loyal and targeted customer base grew to account for 60% of its sales, up from 9%.

Analysts are saying, and I agree, that Kmart should discover who its true customers are, refocus its assortments on stronger brand recognition, and close 500 to 700 of its 2,114 stores. This will allow the retailer to come back onto the scene smaller but stronger, and with more retail focus than before. If there's nothing to distinguish your retail store from Wal-Mart, why wouldn't your customers shop with them? Give them a reason to stick with you before your company appears on the bankruptcy list too.