Supercenters key to Kmart's survival plan: New executive focused on execution - Cover Story - Kmart Corp. business plans following bankruptcy - Brief Article

DSN Retailing Today, Oct 7, 2002 by Debbie Howell

Before Kmart plunged into bankruptcy; executives had high hopes for expanding the supercenter division, with plans to convert as many units as possible to the format. Bankruptcy stalled several initiatives, but Kmart has brought in a former supermarket executive to improve supercenter execution.

Maybe it's fate, but something always seemed to get in the way of Super Kmart progress. For a while it was improving the traditional discount store business, then Kmart ventured into an ill-conceived and costly diversion into everyday low pricing. Today, the future of the supercenter division is as much an uncertainty as is the viability of Kmart itself, and its potential to thrive and return to profitability.

With ceo Jim Adamson brought in earlier this year to lead Kmart out of bankruptcy, the supercenter focus has shifted from growth to achieving financial stability. Once again, a new leader has taken charge of the retailer's food business, this time an executive with 36 years of experience at Albertson's.

Kmart hired former Albertson's president and coo Dick King in August as gram in food and consumables. He is on loan from Encore Associates, a company specializing in business solutions for the food industry.

In a phone interview in late August, King told Food Retailing Today that despite the obstacles, he was convinced supercenters would stay a part of Kmart's long-term strategy. Improving in-stocks remains a priority, he said, though some supply chain projects were put on hold with the bankruptcy.

"We'd always like to have new technology, but we have great systems in place that give us the tools we need to accomplish what we're working on," King said. "We're making sure we fill up the shelves and have the right product on the shelf.... We're seeing improvements in the in-stock levels of our stores."

As for pricing, the strategy has veered from last year's Bluelight Always everyday low price fiasco under former ceo Chuck Conaway to competitive prices that aren't necessarily the lowest. Under Conaway, Kmart lowered prices on 30,000 items, taking a hit in profit margins, and fueling price wars with rivals Wal-Mart and Target.

"We think it's important to be competitive in the marketplace, and not always the lowest price in the market, but to make sure that we have a good, fair price," King said.

Though the Bluelight Always program hasn't been phased out completely, pricing has returned to more normal levels, with emphasis back on promotional advertising.

Another focus is getting the product right for the market. King said he was impressed with Super K's efforts to upgrade perishables and tailor the mix to demographics. Kmart relies heavily on its store managers for input in this area. With Hispanic customers making up a large shopper base, Kmart has expanded its selection of Hispanic food items in select markets.

Kmart sales remain on a declining trend as a result of shipment interruptions earlier this year and public reaction to the bankruptcy filing. For the second quarter ended in July, Kmart lost $377 million on companywide. Sales of $7.52 billion represented a drop of 15.7%. Same store sales were down 11% in the quarter. A breakdown on super-center performance was not provided.

"It is important to improve our customer count. That is a focus," King said. "The main thing we want to do is make sure [Kmart supercenters] have the right product on the shelves and that we're advertising to fit the needs of the area."

Until business stabilizes, significant changes or expansion in the supereenter division are off the table. In fact, Kmart shut down 12 supercenters as part of its store-closing program, ending with 117 units.

Prior to bankruptcy, Kmart had embarked on a plan to convert many of its Big Kmarts into small supercenters dubbed in-the-box units. Kmart currently has 10 such stores, with no immediate plans to add more. King characterized those units as a work in progress.

"We're not satisfied with the sales improvements we're getting, but we're seeing some improvement," King said. "Part of it is to let people know we do have the expanded food in those stores and make sure we're priced right."

Overall, Kmart is hard at work improving the supercenter format, even if financial resources are limited. King said a heightened focus has been on employee training to improve customer service in grocery. Striving to offer the best quality, especially in fresh food programs, is another goal.

Super Kmart's approach to the meat department, for example, retains cutters despite the labor cost. Kmart tested case-ready beef, pork and ground beef, but this spring returned to the traditional butcher method. Supercenters do carry case-ready chicken and other semi-prepped meats.

"We think it's important to have that image in the store that we have people there taking care of the customer and available for special cuts or to answer certain questions," King explained.

The opposite holds true in seafood, where Super Kmart has eliminated staffed seafood counters in most stores. Similar cost-cutting methods are applied in the bakery, with many goods produced by vendors. In the deli, the emphasis has been on service and having plenty of prepared meal solutions available, such as sandwiches.