Closings hurt stature as CE destination

DSN Retailing Today, March 8, 2004 by Doug Desjardins

There was a time just a few years ago when Kmart was one of the top retailers in many merchandise categories, including consumer electronics and entertainment software. But after closing more than 600 stores since 2002, Kmart has slipped in the ranks as it continues to re-establish itself as a more focused player.

Kmart's electronics sections are still fairly large and carry a wide variety of products--particularly in its Big K outlets--with most skewed to lower-end consumers. The same holds true for its music and video departments, which focus on hit new releases, family titles and a large inventory of Spanish language product.

One area where Kmart has fallen through the ranks during the past few years is in video sales. According to Adams Media Research, Kmart ranked ninth among major retailers in video sales in 2003 with $400 million in revenue.

"They were one of the top three retailers in video sales back in the 1990s, but they've fallen behind a lot of others since then," said Tom Adams, president of Adams Media Research. He noted that Kmart now ranks behind retailers with far fewer stores, such as Circuit City, Sam's Club and Costco.

Like most retailers, Kmart now dedicates more space to DVD than VHS, reflecting the fact that DVD sales accounted for 70% of total video revenues in 2003. But Kmart still carries a healthy selection of VHS tapes--particularly in the family and children's genres--and a small selection of Spanish language titles.

In the consumer electronics area, Kmart is still an all-purpose destination with a product selection that runs the gamut from large-screen televisions, digital cameras, MP3 players and cellular phones. Most of its home electronics departments (at least in its Big K outlets) are semi-enclosed areas positioned at the front corner of the store, which helps generate traffic from shoppers heading to and from other departments.

Kmart doesn't cater to high-end customers but does carry quality name brands like Panasonic, Phillips and Sony, at competitive prices. And it showcases lesser-know brands, such as Curtis Mathes a low-price manufacturer that Kmart has made something of house brand in its electronics departments. Stores also stock a healthy selection of DVD players and VCRs along with DVD-VCR combos and higher-priced DVD recorders.

In terms of selection, Kmart can't come close to specialists like Best Buy and Circuit City, but it matches up well with rivals Wal-Mart and Target. Although it doesn't carry many high-ticket items, it does stock some high-end products, such as a 32-inch Panasonic flat screen HDTV for $1,199. It also showcases several home theater systems ranging from an RCA system priced at $679 to a Panasonic model for $349.

Kmart also carries a small selection of digital cameras and camcorders, which it keeps under glass, and a small selection of audio equipment, phones and electronics accessories. And most stores dedicate plenty of space to low and mid-priced televisions with a big emphasis on big-screen sets priced between $199 and $499.

In the video game arena, Kmart was never a big-time player, and now it has an even lower profile. "They had at most 4% to 5% of the video game market, and that's before they started closing stores," said industry analyst David Cole, president of DFC Intelligence in San Diego. "And that's compared to Target with about 8% to 10% of the market and Wal-Mart with about 20%."

Cole said Kmart stores have never been very good at merchandising video games--especially when compared to game retail specialists--and a recent survey showed they haven't become much better. "We did a video game merchandising survey during the holidays, and Kmart ranked the lowest," said Cole. "Part of the problem is they nave all their games locked up in glass cabinets and that's doesn't help."

One area where Kmart is working hard to carve its own niche is in music sales, particularly in Latino music. Stores in Hispanic markets like Southern California feature an entire row of Latino music, and many are anchored by titles by Mexican pop star Thalia, who was given her own branded line of apparel and home goods by Kmart in 2003.

In the big picture, Kmart isn't the force it used to be in consumer electronics and video and has fallen far behind fast-growing rivals Target and Wal-Mart. But it's efforts to target price-conscious consumers and the fast-growing Hispanic market should give it a good point of differentiation as it develops a new identity in the marketplace.