Kmart restructures operations: New 'Super Centers' division hints of commitment to food - Kmart Corp. management - Brief Article - Statistical Data Included

DSN Retailing Today, Feb 25, 2002 by Debbie Howell

TROY, MICH. -- As Kmart carefully reviews each of its store's performance measures in preparation for mass closings, the chain is simultaneously making dramatic changes to its field organizational structure, including a reduction in geographic operating regions from six to four, as well as the creation of a separate new "Super Centers" division.

Although the company hasn't revealed how many of its 2,100 stores it will close, analysts have speculated the number could range from 200 to 700. The official announcement is expected in mid-March.

"I suspect what they're trying to do is make it simpler and reshuffle the deck in terms of people," said Ulysses Yannas, an analyst with New York's Buckman, Buckman & Reid, regarding the streamlined field structure.

Several new executive appointments have been announced as part of Kmart's realignment of its physical operating structure. Foremost is the promotion of Gregg Treadway to executive vp of store operations. Treadway, in essence takes on the responsibilities of former president and coo Mark Schwartz, a Wal-Mart veteran who was fired by ceo Chuck Conaway as a result of failed initiatives that led in part to Kmart's troubles.

Treadway joined Kmart last year to head the Midwest division He formerly worked at Dollar General as vp of store operations, and prior to that held senior-level operations positions with AutoZone, Toys "R" Us and Wal-Mart.

Reporting to Treadway are five division presidents accountable for the financial results of their divisions: Paul Hueber, former senior vp and managing director of the Caribbean division, who now heads the international division Michael Jardina, former Northeast division senior vp, who was promoted to Super-centers division president; Douglas Meissner, former senior vp of sales and advertising, who will lead the Northeast division; Lee Vihborghi, former Northwest chief, now heading the West division and William Wulfers, former senior vp of the Southeast division, who was named president of that same geographic division.

Several other executive changes were announced, including the appointment of David Montoya as senior vp of specialty operations. Montoya will report to Hueber and will be responsible for growing Kmart's specialty business interests, as well as Kmart Express, restaurant operations and one-hour photo.

Montoya had been executive vp of store operations and likely was demoted as a result of failed initiatives under Schwartz's leadership. He worked at some of the same retailers as Schwartz, including Wal-Mart, Big V Supermarkets and Hechinger's.

Heading sales and marketing now is David Marsico, replacing Meissner. Marsico, a 30-year Kmart veteran, formerly headed the Southwest division. The defunct chief marketing officer position held briefly by outsider Brent Willis never was filled after Willis, who hailed from Coca-Cola, left.

One of Kmart's weaknesses has been its marketing strategy, including its BlueLight Always campaign launched last year that failed to differentiate the company, but instead initiated a price war with Wal-Mart and Target.

What's interesting about this latest round of executive changes is that all of the promotions are internal. Since Conaway joined Kmart in 2000, he made a point to recruit numerous executives from outside the company.

Yannas said recently named chairman of the board James Adamson has shown particular interest in marketing, an area viewed by many as Kmart's primary weakness. Conaway, former chairman, was moved out of this role at the time of the bankruptcy filing.

"As far as understand, a lot of the executives in merchandising and marketing are being supervised by the new chairman. He's gotten very involved in that subject. They're trying to redefine an image," Yannas said.

Kmart has been relatively silent so far as to its marketing strategy beyond a commitment to be "the authority for moms." The company reportedly was to launch a new television campaign featuring the tag line "Kmart. For Real Life" in a commercial directed by Spike Lee. Meanwhile the retailer has kicked off an outdoor ad campaign in Detroit, near its corporate headquarters in Troy, Mich., with the message "We're making a you turn. Kmart." Viacom Outdoor gave Kmart the use of 10 billboards in the market.

As for Kmart's progress in reorganization, the bankruptcy court on Feb. 13 addressed several issues needed to keep tile retailer afloat as it formulates a plan to exit bankruptcy in July 2003. The judge in Chicago approved payment of $10 million to keep Kmart shelves stocked with liquor, as well as $6 million to maintain shipments of exclusive branded goods such as Martha Stewart.

Next month, the company is expected to present a plan to the judge outlining store closures. In January the court approved Kmart's request to terminate leases at 350 locations where stores had already been shut down or were subleased to tenants. saving the retailer an estimated $250 million annually.

Also in March, the first reported financial results are due to the court. Kmart hasn't released any information on its sales since December and has only stated fourth quarter performance in sales and earnings were below plan.