Specialty overshadows full-liners at K mart - K mart Corp. sales statistics - Discount Industry Annual Report: Part 2: Merchandising & Productivity

Discount Store News, July 17, 1989

Specialty Overshadows Full-Liners at Kmart

TROY, Mich. -- Despite intensive marketing efforts aimed at attracting the baby boom generation to its discount stores, K mart's future growth is likely to come predominantly from its specialty concepts.

Last year, the company purchased a 51 percent stake in Makro, the Cincinnati-based membership club, and announced plans to expand the chain to about 20 stores by the end of 1990. It opened Office Square, an office supply megastore that, though in the experimental stage, is poised to exploit that rapidly growing retail sector.

Of the corporation's $27.3 billion in sales last year, approximately $4.1 billion was generated by its Pay Less Drug Stores, Waldenbooks, Builders Square and Bargain Harold's of Canada specialty divisions. That's nearly an 18 percent increase over the previous year. Subtracting Makro's estimated sales of $300 million (representing a 20 percent increase over 1987), K mart's discount stores sales grew only 3.1 percent last year to $22.9 billion.

This year, the company launched another experimental specialty concept, Sports Giant, a membership sporting goods chain. And, its most ambitious new launch, American Fare, debuted in Atlanta in February. While its ability to generate enough volume to justify its enormous investment is still open to question, American Fare broke new ground in discount store/hypermarket retailing with its innovative fixturing and store design, sharp prices on general merchandise and upscale sportswear merchandise mix.

"Specialty retailing is very important to our future," said chairman and ceo Joseph Antonini, during a press conference following the company's annual shareholders meeting last month. He estimated that specialty retail could contribute up to 20 percent in sales and profits to the corporation.

He further indicated the potential to speed up specialty store rollouts through the opening of K mart "power centers." Plans are on the drawing board for shopping centers containing several of what Antonini describes as K mart's "category cruncher" concepts. Such a center would combine a K mart discount store with any number of specialty stores, such as Builders Square, Office Square, Sports Giant, Waldenbooks, or even a Makro. Secaucus, N.J., has been mentioned by some trade observers as one possible site for such a center.

In comparison to the aggressive growth plans of the specialty chains, K mart's discount department store expansion appears stunted. Given the disappointing sales results recorded so far this year, it's hard to imagine how the chain will execute its plans to open 75 to 100 more full-size stores annually over the next five years, even if 30 or so will replace existing stores.

K mart completed its shift from twice-weekly advertising circulars to one circular per week this year, and has concentrated its marketing programs in event sponsorship and celebrity tie-ins.

During the Winter Olympics, K mart sponsored the United States Hockey Team and was a high-profile advertiser during the Summer Olympics telecast. It signed a three-year sponsorship with the United States Gymnastic Federation to co-sponsor the K mart Gym Kids Club.

Approximately 600,000 children belong to the club, receive a free quarterly newsletter and other membership paraphernalia. "Kids have tremendous purchasing power," noted K mart vp Michael Wellman. "They have approximately $5 billion of their own money to spend and they're influencing parental spending of over $40 billion a year."

Noting that golf has replaced tennis as baby boomers' favorite participation sport, K mart sponsored for the second year the Greater Greensboro Open golf tournament, which was broadcast on network television this April.

The company also rolled out the Martha Stewart program in an effort to establish a recognizable identity for several departments of the store: convenience products, leisure and entertainment, consumables, do-it-yourself, automotives and sporting goods.

Another opportunity for growth is the introduction of food into K mart stores through its new Super K mart general merchandise/grocery store combo units.

PHOTO : K mart, Piqua, Ohio: Growth rate of full-size stores is not expected to keep pace with

PHOTO : expansion in specialty retailing areas.