Customer initiatives top Kmart's agenda - Brief Article - Statistical Data Included

DSN Retailing Today, June 4, 2001 by Debbie Howell

DETROIT -- The new Kmart is starting to emerge as a tightly focused retailer intent on serving its customers' needs, with higher levels of performance and profitability on the horizon. This promise from ceo Chuck Conaway to shareholders at the company's annual meeting May 15 in Detroit left no room for failure, despite the chain's mixed performance in 2000.

"This really is the new Kmart, with a heightened sense of urgency and clear focus on our structural and cultural transformation," Conaway said. "We are playing to win."

Conaway, hired as ceo last summer, boasted of several significant milestones on the road to achieving world-class execution, creating a customer-centric culture and defining a differentiated marketing position. Among them were gains in customer satisfaction, elimination of nearly 15,000 trailers holding excess inventory, prompt changing of prices, a rise of in-stock levels from 79% to 88% and completion of 90% of resets.

Customers are responding, Conaway said, with Kmart noting low single-digit same store sales increases despite reduced advertising costs and a softening economy. Further, the recent revival of the Blue Light Special and related Blue Light Always value branding message are helping position Kmart as the authority for moms, kids and home. "We will offer the best brands, best merchandise and the best shopping experience," he said. "We will be the authority in meeting mom's needs."

The retailer will achieve this through emphasis on "best brands" such as Martha Stewart, Sesame Street and a new Disney clothing line. This ties in with a new pricing strategy on thousands of consumables items that were lowered to competitive, consistent "Blue Light Always" prices.

The Blue Light Special, relaunched in April, already has given Kmart a boost. Conaway said the average basket is 20% higher, and the number of items nearly double when a customer takes advantage of the promotion. These same customers shop 1.3 more departments on average.

But great products with mediocre service won't help Kmart. Since implementation of a new customer service rating system last fall, Conaway said, Kmart has improved from 40% of customers rating their shopping experience as excellent to 57%. The goal is 70%.

Every Kmart associate has could earn a bonus, up to 7% of pay each quarter, based on improvements in a store's Super Service Index (SSI) customer satisfaction score--a program Conaway called a first in retail. Half of a store manager's bonus is based on that rating.

Technological improvements are also playing a part in improved store execution. Kmart is spending $1.7 billion on technology upgrades, such as adding new IBM registers to all stores by yearend, increasing the number of self-checkouts and using remote scanners to implement a program called "Bluelightning," so customer's basket is scanned while waiting in line.

Some of these programs fall under what Conaway called Kmart's 2001 "Big Five" initiatives: fixing the supply chain, improving marketing effectiveness, making food world-class, reducing expenses and improving the bottom 250 stores.

Conaway said Kmart's new alliance with food supplier Fleming will play a significant role in enhancing the quality and competitive pricing of its food and basic consumables.

Although the company will only open about 10 new Super K's this year, Conaway said, 900 Kmart stores could potentially be converted to supercenters over the next decade. It now has 105 units. "When we are ready and we prove we've got a solid core business earnings return, Super Kis a phenomenal growth vehicle," Conaway told reporters following the annual meeting.

One of the more interesting measures of Kmart's performance success lies with its competitive response program. Last year, competitors Wal-Mart, Target or Meijer moved into markets to compete directly with 325 Kmart store locations. Conaway said these Kmart stores as a group, facing tough competition, saw comparable store sales improve by 50%.

"Most amazing is that this progress was made in just 150 days. It is simply the result of a new company with a new store execution and new customer service," Conaway said.

Although Conaway talked more about specific indicators of progress than Kmart's overall financial performance, the company didn't have a bad year considering the softening economy. For the fiscal year ended Jan. 24, 2001, Kmart generated sales of $37 billion, a 3.1% increase over 1999, and a 1.1% gain in comps. A charge of $748 million for strategic actions led in part to Kmart's $248 million loss. The charge related to the closure of 69 underperforming stores, inventory reductions and increased spending for technology.

Many analysts have been positive about Kmart's potential. Since December, its stock price has nearly doubled to around $11. Still, that's a far cry from the retailer's high of about $20 in mid-1998.

Even though some shareholders told Conaway they hadn't seen firsthand improvement in customer service or shorter checkout lines, the ceo assured them Kmart was taking its mission seriously.