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Discount Store News, July 22, 1991

Wal-Mart Pushes Past Kmart to Reach No. 1 Position in Discounting

If this were the Olympics, race officials would demand a steroid test.

In just seven years, Wal-Mart has closed Kmart's seemingly insurmountable $14 billion lead in discount store sales to become the nation's largest discounter.

Wal-Mart's discount store division racked up an impressive 21.5% sales gain in 1990, topping $25 billion in annual sales, and passing Kmart, which logged a 1.5% gain to $24.8 billion.

Target is the only other discounter within striking distance of the Big Two. The upscale discounter completed a strong lap last year, achieving an 8.8% sales gain to $8.2 billion in sales.

As a group, the discount department store segment of the discount retail industry experienced a 6.4% sales increase last year, despite the recession. They achieved that sales gain on a base of 31 net fewer stores.

As each of the Big Three discounters enter their 30th year, they have achieved an unprecedented position of dominance in the discount retail market. Excluding the $5.6 billion in sales gained by Wal-Mart, Kmart and Target in 1990, the remaining 46 top discount chains actually lost about $600 million in sales last year. In 1990, the Big Three rang up nearly 70 cents out of every $1 worth of merchandise sold in a discount store.

In the process of taking the discount store sales leadership from Kmart last year, Wal-Mart was the industry pacesetter in other ways, too. It continued to be a leader in forging strong partnerships with its vendors, evidenced by the opening of its second vendor store in Charlotte, N.C., and by its push to electronically transmit sales data and purchase order to its suppliers.

The Bentonville, Ark.-based chain also took a leadership role on the environmental issue, encouraging manufacturers to make improvements in their products and packaging, and setting up recycling centers at many of its stores.

Among other noteworthy developments: Wal-Mart began testing vision centers, added a private label tool line, and expanded into California and Pennsylvania.

Through all the rapid expansion, the most amazing aspect of Wal-Mart's rise to the top of the discounter list is its ability to keep its employees motivated and focused on serving the customer.

If Wal-Mart has been on a relentless mid-race drive, Kmart appears to have coasted the last few laps in preparation for a furious kick of its own. At the Troy, Mich.-based retailer, corporate attention has returned to the discount store base. Last year, Kmart embarked upon a $2.3 billion modernization program, scheduled for completion by 1995, unveiled a new logo designed to update its image and began rolling out its prototype store of the '90s. An exclusive DSN research study on the new store prototype in two markets (Detroit and Virginia Beach) found that consumers liked the new prototype and planned to spend an average of 50% more in the new stores.

Such results suggest that if Kmart sticks to its refurbishment schedule, it will be more than a match for Wal-Mart in the coming years.

Another positive development last year was Kmart's completion, one year ahead of schedule, of its POS/satellite system. The communications network makes the retailer more efficient and enables Kmart's charismatic chairman Joe Antonini to communicate his "vision" quickly to the chain's 350,000 employees.

With its relatively smaller store count base, Target perhaps has the most potential to be the strongest growth retailer of the '90s. Like its two bigger competitors, Target also did more than its share to increase the public's and its suppliers' awareness of the earth's environmental problems. It sponsored a club called Kids for Saving Earth and won the 1990 DISC (Discounters in Service to the Community Award), sponsored by DSN, for its role in community service.

Target continued to be an innovator in merchandising in 1990. The Minneapolis-based discounter was cited at the Licensing Show for its effective use of licensed properties in its stores; its roll out of the second generation of its Country Estates coordinated bed & bath program; and unveiling new exclusive apparel lines like Elliot Bay in men's wear and Merona in women's. The retailer also improved its distribution center technology and accelerated its Quick Response Partnership program with vendors.

However, despite the dominance of the Big Three, it should be noted that four other billion-dollar-plus discounters had strong sales gains in '90.

Fred Meyer, the Portland, Ore.-based discount retailer, neared the $2.5 billion sales mark with an 8.6% sales gain last year. The departure of chairman Fred Stevens leaves a management void, but the chain continued to hold a strong consumer franchise in its Pacific Northwest trading areas.

Caldor, Norwalk, Conn., is one of the turnaround stories of the year. The chain was positively revitalized by its spin-off from the May Department Stores Co. Even though its new prototype had been rolled out in only a handful of stores, Caldor achieved a 12.7% sales gain last year to nearly $1.8 billion in sales.