Kmart Czechs into Europe - K Mart Corp.'s Czechoslovakian acquisitions

Discount Store News, June 15, 1992 by Laura Liebeck

WASHINGTON, D.C.-- Kmart became the first full-line discount store chain to take advantage of the new free markets of Eastern Europe by purchasing as many as 13 Czechoslovakian retail stores.

The $100 million investment--over a year in the making--represents the first step in Kmart's European expansion.

No further European expansion is planned for the next three years as Kmart develops the Czech stores, said Joe Tomas, executive vice president, international and administration.

However, Kmart is interested in developing other international markets in the future and did evaluate opportunities in eastern Germany, Hungary and Poland prior to deciding to enter Czechoslovakia. Furthermore, chairman Joseph Antonini told shareholders during the company's May 27 stockholder's meeting that Kmart may venture into Poland, Hungary and even Russia in the years ahead.

Kmart announced May 7 that it acquired a 76% equity stake in MAJ, a Prague retailer, from the State Asset Fund of the Czech Republic, and acquired nine other Czech stores-five in the Czech republic and four in the Slovac republic-the last weekend in May. Negotiations for two other stores are continuing, "plus we're still looking around," Thomas added.

Kmart construction and store layout people will travel to Czechoslovakia this month and start to do the layouts, said Thomas, adding that Kmart recently ordered some apparel merchandise for the Czech stores.

In addition, Antonini told shareholders that Kmart agreed to build an export program with Czechoslovakia. This Christmas, Kmart will offer Czech-made Christmas tree lights.

During the joint announcement for the first Czech store held in Washington, D.C., with Tomas Jezek, minister of privatization of the Czech Republic, Antonini said that Kmart's global expansion was "very timely" considering the chain's $3 billion renewal program is "on schedule and yielding results that are exceeding our expectations."

Antonini also commented that Kmart joins a long list of American companies, such as Procter & Gamble, Dow Chemical, Coca-Cola and TRW, that have invested over $1.4 billion in Czechoslovakia in the last year. Some of those companies will even help Kmart in Czechoslovakia, he told stockholders last month.

Kmart's foray into Czechoslovakia is the retailer's third venture outside the United States. It operates 126 stores in Canada and holds a 22% equity in Coles Meyer, the largest retailer in Australia.

Kmart decided to open stores in Czechoslovakia for a number of reasons, Thomas noted, including:

* The country's highly educated work force;

* The lack of significant retail competition;

* Kmart's ability to serve the country with the current group of stores it is acquiring;

* Czechoslovakia's stable government;

* The country's low inflation;

* The government's control of the privatization process.

In addition, Kmart is able to take its profits in hard currency, said Thomas. However, Kmart was looking at Czech expansion opportunities even when the ability to take profits in hard currency was questionable.

The idea to expand into Czechoslovakia came from Kmart's Canadian division, specifically from Max Seunik, since named managing director and chief operating officer, Kmart-Eastern Europe. Seunik, a 30-year Kmart veteran originally from Austria, has been in Czechoslovakia for one year working on the acquisition.

Other Kmart executives named to the Eastern European operation include: Randy Schemidt, director and cfo of accounting and financial reporting; Chad Smith, director, hard lines merchandise; Dick Benoit, director, soft lines merchandise; George Newton, director of human resource and management development; and Vic Gajda, director of MIS/logistics. The five directors, all from Kmart's U.S. operation, report to Seunik who reports to Thomas.

The staff will work to develop appropriate merchandise, fixturing, personnel/training, and technology programs suitable for the Czech market, said Thomas, noting that all the programs should be in place by fall when Kmart's first store, MAJ (pronounced "my") holds some kind of grand reopening.

MAJ is a multilevel store with 96,300 sq. ft. of selling area and 700 employees. No layoffs are planned. MAJ has no central checkout. Thomas said the store has a broad array of product that is moderately priced. It also is well stocked and well run, although it does need a lot of work to raise it to Kmart standards, said Thomas.

Despite Kmart's majority position in MAJ, the store will retain its own name. However, Kmart is likely to affix the phrase, "a Kmart company," on the marquis as well, said Thomas.

The other Czech stores--located in each of Czechoslovakia's two republics--will probably get the Kmart name after they are refurbished, he said. Those stores are known as "Prior," common names for state-owned stores. Like MAJ, Kmart will operate them as combination grocery/general merchandise units, Antonini told corporate stockholders.

All of the stores Kmart is acquiring are located in downtown areas and most are multilevel units, said Thomas. In the future, Kmart will have a lot of expansion opportunities in suburban communities.