Learning From Kmart's Mistakes

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Oct 3, 2003 by Sean Luce

Eighteen months ago, I wrote an article about the demise of Kmart due to its failure to effectively advertise its brand in the mind of the consumer (Radio Ink, 4/1/02). Much of this downturn was due to the use of weekly advertising circulars and the spending of millions of dollars to announce special prices on selected items ("BlueLight Specials") in a multi-page, full-color booklet, a strategy they continue to use. The deathblow came in September and October of 2001, when Chuck Conaway, CEO of Kmart, decided to cut back on
advertising, spinning the struggling retailer toward bankruptcy, for which it filed in January 2002.

In that original article, I touched on Kmart strategies - specifically, those weekly circulars and a distinct lack of Radio and television advertising to deliver the nearly two-thirds of customer purchases driven by the brand. In the case of the Kmart customer, that brand is confused and diluted.

Here are five lessons that can cripple any retailer who wants to increase market share and build a franchise in the mind of the consumer.

NO STRATEGIC PLAN: Kmart's branding strategy was focused on a collection of branding deals - Martha Stewart, Jaclyn Smith, Kathy Ireland, Joe Boxer and Sesame Street - to fill a need that was more perceived than real. That strategy targeted upscale suburbanite moms with household incomes of $30,000 to $70,000, whereas Kmart's actual consumers were urban and rural dwellers with less than $20,000 in annual household income and less education. The Martha Stewart brand was a way to sway Kmart away from pure price competition and low prices, yet it continued its weekly advertising circular targeting price-only buyers, who perceived the "BlueLight Specials" as cheap. There was also a contradiction with basic store appearance. Upscale Martha Stewart shoppers were not inclined to shop in run-down stores, and stores that didn't look as chic as the Martha Stewart brand paid the price.

INTERNAL FACTORS: One of the first things I try to communicate to retailers is the importance of improving internal service and sales. In most cases, because retailers are so close to their own business, they often overestimate their closing ratios for their salespeople. If only they could improve their current closing ratios, their advertising might not have to create miracles to increase growth for their business.Take for example a typical shopping experience at Kmart, where a customer who asks for a particular item is told it can be found "somewhere in automotive." By contrast, a Wal-Mart associate would walk that same customer to the featured display.This is not something media can affect.

TURNOVER AND LOW MARGIN: In 2000, Kmart had an inventory turnover rate of 3.6 times per year, vs.Wal-Mart's 7.3 times per year and Target's 6.3. This easily explains Kmart's losses of $244 million and Wal-Mart's profits of $6.7 billion that year. The more inventory you turn, the more sales you should realize.Adding to the low turnover, the "BlueLight Specials" yielded low profit margins and focused on getting priceonly shoppers in the door. All that became a financial disaster.

MEDIA MIS-TARGET: In 2002, Kmart finally got on the brand-equity bandwagon with a new $25 million Radio and TV advertising campaign designed to speak directly to minority consumers, specifically Hispanic and African-American consumers. By using celebrities who target both of those audiences, however, it left out the 60 percent of Kmart shoppers who are not multicultural. Thus, Kmart was sending a mixed message.

"BLUELIGHT"DISASTER: Reintroduction of the "BlueLight Special" in 2001 finally dug the bankruptcy grave for Kmart. What did the blue light say to the typical consumer? "Cheap!" Kmart was positioned as cheap, period. Run that up against the Martha Stewart brand, and a branding fiasco takes on legs of its own.

You can take this example of Kmart's missteps directly to the retailers in your market to make sure they don't fall into the same hole and blow their marketing strategy. Once a retailer's position is lost, it's almost a foregone conclusion they won't get it back. Remember Montgomery Ward?

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