Antonini fends off critics at Kmart meeting; blames 1Q woes on weather & worried shoppers - Joseph Antonini, 1st quarter

Discount Store News, June 7, 1993 by Laura Liebeck

Blames IQ Woes On Weather & Worried Shoppers

TROY, Mich. - Kmart chairman Joseph Antonini took the floor at the company's annual stockholders' meeting last month, giving little ground to critics on the retailer's 81% for first quarter net profit plunge.

"Eleven hundred stores were hit' during the March storms that swept the eastern half of the United States from Florida to New England, Antonini said, causing damage "like you never saw." In addition, Antonini explained that low consumer confidence in the national economy coupled with special charges, like the 2-cent charge for retirement benefits, cut deeply profits.

"We'll make it up to you," he said at the May 25 meeting at company headquarters. He noted that May sales have rebounded.

Antonini also fended off questions concerning Kmart's rationale for entering the grocery business via the Super Kmart Centers and the long-range health of Pace Membership Warehouse, the Kmart club subsidary that recently agreed to sell 14 underperforming units to Wal-Mart.

During the press conference that followed the 90-minute annual meeting, Antonini agaon reiterated Kmart's interest in spinning off one of the company's subsidiaries. He declined to name a likely candidate. However, Orren Knauer, director of investor relations, told reporters that Sports Authority is likely candidate.

On the international scene, Antonini said that two supercenters will open in Mexico next year in accordance with partner Puerto de Liverpool and that grand opening celebrations for the 13 stores in the Czech Republic and in Slovakia will be held in July and September.

The prime message of Kmart's 1993 annual meeting, its 81st, was the progress of the 5-year, $3.5 billion store renewal program and the changing customer base.

Antonini reported that sales of remodeled stores, dubbed "look of the '90s," rose 14% in the 1991-1992 period. Sales of relocated stores with the new look for the same period rose 23%.

Last year, Kmart completed 448 projects in the renewal program. In addition, the retailer opened 118 new Kmart discount department stores, replaced 83 stores and added one Super Kmart Center. By year-end 1992, Kmart completed 1,130 retrofits/replacements. That number has since jumped to 1,162, or 57% of the chain. This year Kmart has 200 projects slated, including the opening of 17 supercenters.

Overall, Kmart's new prototype stores recorded a 6% comparable store sales gains in 1992 over 1991, compared to a 1% decline for the year for non-modernized units, Antonini said.

Antonini reported that Kmart conducted an evaluation of 214 retrofitted stores in 10 key markets - Atlanta, Chicago, Detroit, Houston, Los Angeles, Minneapolis, Philadelphia, Pittsburgh, Riverside-/San Bernardino, Calif., and Tampa/Ts. Petersburg/Clearwater, Fla.

Although the full study will not be released, Antonini reported following results: * 43% of the stores compete directly with a Wal-Mart; * The look of the '90s' stores recorded higher sales and were 35% more profitable than non-retrofitted units; * The average market share for the 214 new-look stores was 6.11% vs. 4.97% for nonrehabbed units.

Despite this evidence of Kmart's success with its new format units, Antonini noted that the economy has many consumers worried and spending remains low. This scenario, he said, requires Kmart and other retailers to be introspective about its strengths and weaknesses, emphasizing one and lessening the other.

As a result, Antonini explained to the audience of more than 1,000 people that the decisin to sell 14 underperforming clubs to Wal-Mart will allow Pace to better focus on its business members.

Flexibility, he said, is key to long-range success. The chief executive then provided the audience with a video tour of Kmart's newestnstore prototypes, providing evidence of its flexibility and commitment to customer service.

The video tour included Builders Square II in Utica, Mich., Borders Books & Music, Super Kmart Center in Montrose, Ohio, and Kmart's Auburn Hills, Mich., store.

Borders Books & Music is the latest prototype of the Borders bookstore chain which Kmart acquired last year. The unit features 70,000 music titles, 9,006 videos and 120,000 books.

During the video tour of the Super Kmart Center, Antonini emphasized that the store is "not a Kmart with food" but a one-stop shopping experience.

He said that in addition to the 17 Super Kmart's scheduled to open this year, two are slated to open next spring in Mexico. No specific sites were mentioned during the annual meeting or the press conference that followed. However, Antonini did identify the following states that will receive supercenters this year. They include: North Carolina, Ohio, Texas, Arizona, and Illinois.

He also hailed the Auburn Hills, Mich., prototype which opened last November as the creme de la creme of Kmart."

"Our renewal never stops," he noted. "Our goal is to make continuous improvement a way of life."

One stockholder questioned Kmart's commitment to meeting ind beating a competitor's price. Said the stockholder: "Having the lowest price isn't how we're going to stay in business." Antonini responded by saying that price is only one part of the package. "Price only lets you play the game," Antonini said. "You need the whole combination.