Chainwide remodeling key to K mart's future - Discount Industry Annual Report: part 2: Chain Profiles - company profile

Discount Store News, July 16, 1990

Chainwide Remodeling Key to K mart's Future

New Concepts, Acquisitions Rejuvenate No. 1 Discounter

TROY, Mich. -- The 1990s will see the most ambitious remodeling program in discount history, as K mart revamps its 2,200 stores to conform with its new Oak Park, Mich., prototype. At the same time, the chain will add about 300 new stores and relocate another 200 or so.

The nation's largest discounter has struggled over the past two years and, until recently, appeared to be stagnating. It had stopped growing, adding only 50 or so stores a year, and many of its storefronts had become obsolete.

Archrival Wal-Mart had jumped ahead of K mart in developing new concepts, becoming a leader in the wholesale club business with Sam's and in the hypermarket business with Hypermart USA. K mart had only a handful of Makro quasi-warehouse clubs to show for its expansion efforts.

But 1989 saw a flurry of activity. In early spring, K mart debuted its hypermarket, American Fare, then followed with what Wal-Mart calls a supercenter, a food/general merchandise amalgam called "Super K." As has been Wal-Mart's experience, the latter, a smaller, more sku-intensive version of the hypermarket, has been more successful.

Later in the year, K mart bought Pace Membership Warehouses, a successful chain that immediately put K mart on the wholesale map.

In early 1990, K mart purchased The Sports Authority, a successful sporting goods megastore operator. In both cases (Pace and Sports Authority), the purchase included the services of current management; Charles Steinbrueck of Pace and Jack Smith of Sports Authority. K mart not only strengthened its retail presence, it also deepened its senior management "bench" and acquired specialized category skills.

Earlier this year, chairman Joseph Antonini noted that the 1989 openings and acquisitions were the groundwork for K mart's long-term strategy for the coming decade. He envisioned "a core of 2,500 modern K mart stores" supplemented by a group of high-volume, value-driven specialty operations. Current speculation has K mart acquiring one or more ongoing office products chains in the coming years, and the retail giant might even look carefully at some form of off-price fashion apparel operation (a sensitive area, given the chain's well-publicized failure in the '80s with Designer Depot).

K mart is trying to reposition itself in the mind of its shopper, attempting to become more fashionable and upscale. While the notorious "Blue Light Special" will probably remain (even Wal-Mart has copied the strategy with "Red Light Specials"), as will low-cost apparel, most departments will see an ever-increasing attention to fashion and upmarket goods.

At the Oak Park prototype store, the apparel departments are a sea of neon, and hot licensed apparel (e.g. The Simpsons, New Kids on the Block) highlighted the juniors and children's areas. Each department contains bright, colorful transparencies, and goods are displayed on waterfall and other fashionable fixtures.

The Martha Stewart coordinated collection dominates the home fashions department, and it is joined by high-fashion products from leading mills. While promotional and opening-price goods are still an important part of the mix, higher price point fashion goods are now at least equally important.

Similar trends are evident throughout the store, in consumer electronics, photo, housewares and toys (which currently features a whole Ninja Turtle wall). The store illustrates K mart's emphasis on developing key lifestyle departments into businesses with category dominance.

As the prototype spreads throughout the chain, K mart hopes that it can attract the relatively affluent shoppers that have been siphoned off by specialty stores, warehouse clubs and upscale discounters like Target.

It will be a long-term project, however. K mart, for whatever reason, has developed a stigma among upper middle-class consumers.

K mart may have sabotaged itself by relying almost exclusively on private label apparel which too often tended to be less than fashionable and poorly constructed. It will struggle to get shoppers back into the habit of shopping the full store.

According to Antonini, the private labels that remain, most notably Jaclyn Smith, have performed well and are returning healthy margins. The company is exploring other celebrity endorsers to escape the low-fashion public perception.

That was also the intent of the Martha Stewart tie-in, which reportedly cost K mart millions. Denied hot designer names in domestics and designer-type products in housewares, the company attempted to create its own hot designer name, which would allow it to compete against specialty stores and department stores like Macy's.

To date, Martha Stewart has not been a raving success. During the annual meeting, Antonini supported the program and said he was happy with sales results, but indications are that with the exception of one hot sheet comforter pattern, the program has not created the degree of excitement K mart thought it would. However, a K mart store manager noted that Stewart's TV and cable specials have "legs" and can run year after year, spreading the K mart word and leveling the initial investment over time.