Kmart opens 15 supercenters; 'In-the-box' conversions less costly but cramped - Brief Article

DSN Retailing Today, Nov 19, 2001 by Debbie Howell

TROY, MICH. - Kmart's opening of a record 15 supercenters in two months may be a positive sign that turnaround efforts are paying off, with attention shifting from fixing the fundamentals of its business to concentrating on growth strategies.

Kmart will end the year with 124 supercenters, having added or converted 20 units to this format. This represents almost a sevenfold increase from the sluggish expansion pace of recent years, when only a handful of stores were added annually.

With these latest openings, Kmart is experimenting with its smallest supercenter to date. Ten stores that opened in October were converted from discount stores to the Super Kmart format without any physical expansion and appear to be the first tests of chairman and ceo Chuck Conaway's plan to convert as many as 1,000 to 1,300 traditional stores to the more profitable combination format.

"We're excited about the possibilities of our 'in-the-box' conversions to supercenters," Gonaway stated. "Right now our plans are to go slow and treat these openings as test cases we can study before we move forward."

Ranging in size from 120,000 sq. ft. to 148,000 sq. ft., the conversions are in states where Kmart has other supercenters-four in Alaska, three in Michigan and one each in New York, Arkansas and Puerto Rico.

With food taking up a third of space in a typical supercenter, the conversions required cutting back general merchandise. Spokeswoman Susan Dennis could not say how each store was changed, but a visit by DSN Retailing Today to a Middletown, N.Y., unit showed a general trimming back in most departments. Food appeared to be scaled back, as well, with smaller service departments than at new Super Kmarts.

"We really looked at the strengths of the store, and it varied store by store in terms of what areas may be trimmed back," Dennis said. "All the stores have the basic departments, it's just a matter of how deep the selection is."

New decor features unveiled at a grounds-up supercenter this past May in Cordova, Tenn., were applied to the converted units-colorful signage in the produce department, storefront-type banners above perimeter food departments and signage promoting competitive, valueoriented pricing. These newest supercenters also sported updated jewelry displays and a broader selection in electronics, Dennis said. All of the stores have self-checkouts, a feature being rolled out chainwide.

Beyond these in-the-box conversions, Kmart opened five other supercenters this month. Two grounds-up units were added in Phoenix and Detroit, while three were expanded to supercenters in Montgomery, Ala., and Englewood, Colo.

Even with the new and expanded stores, Kmart appears to be leaning toward a smaller footprint than its past prototype of 170,000 sq. ft. to 190,000 sq. ft. These five range in size from 142,000 sq. ft. to 152,00 sq. ft. The smaller supercenter format enables Kmart to make better use of its existing real estate, which the retailer views as a competitive advantage.

"We feel we have a very strong base to begin with, and it's a matter of looking at those sites and seeing if they can be developed further," she said.

In the past, Kmart was criticized for opening supercenters in diverse markets instead of using a clustering approach for marketing and distribution efficiencies. This seems to be less of an issue now that Kmart has improved its food distribution system through its single-supplier agreement with Fleming. Though the emphasis is still on bulking up supercenter numbers in major markets, Kmart appears to be examining every existing location and, where feasible, converting discount stores to supercenters. The two units opened in Montgomery, Ala., for example, mark the first supercenter units by Kmart in that state or city market.

As for how many supercenters Kmart intends to open next year, this number hasn't been divulged. But Ulysses Yannas of New York-based Buckman, Buckman & Reid, said he wouldn't be surprised if Kmart added 30 to 50 units.

Kmart officials told Yannas the converted stores, which might be considered mini-supercenters, had been reporting 100% increases in same store sales. These kinds of returns, even if partly related to the novelty factor, are certainly the kind that could give Kmart a needed boost as it works to improve its image and shopping experience, other prime areas of focus.

When Conaway became ceo last year he embarked on a massive makeover of Kmart. His priorities included the creation of a world-class supply chain, improved retail execution through gains in customer satisfaction and the implementation of a clear and compelling marketing message.

One element of this strategy developed into Kmart's alliance with Fleming as its sole food supplier. This enabled the retailer to devote attention once again to its food business, which had suffered from out-of-stocks and non-competitive pricing. Through Fleming's buying scale and programs to cut out supply-chain costs, Kmart has been able to lower prices and implement its new "Blue Light Always" pricing strategy.