Life at top wasn't easy for Kmart - discount retailer with 2nd highest sales - Column

Discount Store News, Feb 21, 1994 by Arthur Markowitz

Kmart success in the '60s and '70s contained the seeds of the retailer's problems in the '80s and '90s.

In the '60s and '70s, Kmart was the premier discounter, attaining the second highest sales of any retailer. Its stores blanketed the United States, and were shopped most often by more Americans than any other general merchandise retailer.

The company was literally sitting on top of the retailing mountain.

The Kmart formula was so successful that stores continued to be rolled out following the same core format, while merchandising and operations continued to run on the same track. Changes took the form of fine-tuning of the basic Kmart concept, rather than extensive examination or in-depth review of the store prototype, merchandising or operations.

In a very understandable attitude, nothing was broken at Kmart, so nothing had to be fixed.

And while nothing was broken, in reality, American lifestyles as well as retailing had undergone extensive changes during the two decades, so that by the end of the '70s, as the '80s loomed on the horizon, everything had to be fixed if Kmart was to retain its leadership position in the new merchandising and marketing environment.

That didn't happen.

A hose of factors were responsible for this, including an inbred, insulated management, at fervent belief that little, if anything, could be learned from competitors and a focus on the financial aspects of the business, rather than the merchandising side and the need to test, probe and experiment with new merchandising concepts and technology.

When Kmart realized that it had to fix itself, its past success and its huge size almost did it in.

It's easy and relatively inexpensive to remodel a few stores, add the latest technology and upgrade a few distribution centers. A PT boat can be effortlessly manuevered, its direction of attack quickly changed.

But by the '80s, Kmart was a ponderous battleship, slow and languid in response to the best of helmsmen. The cost, in money and time, to remodel 2,000 stores--some 20 years old in sites that shoppers were passing by for newer centers--add the latest technology and update an extensive distribution network with the newest state-of-the-art systems was extensive and expensive.

Kmart for the past decade has tried to remake itself. Its initial effort was to leapfrog the problems of its core discount business by becoming a diversified retailer, operating a variety of specialty stores. The payoff from this approach has been, at best, mixed. The discounter has done better by growing acquired specialty chains like OfficeMax and The Sports Authority than with those it launched from scratch, such as Designer Depot, a failed apparel specialty chain.

Now, as Kmart prepares the 21st century, it has decided to unprofitable stores, remodel viable units into powerful selling machines and put itself on the cusp of the newest technology.

But it's also heding its bet--it's investing heavily in supercenters which it--and rival Wal-Mart--see as the dominant retailing format for the next century.

The Kmart saga is a fabulous and fascinating retailing, nay, business, adventure. And the moral: It's a long hard climb to the top of the mountain, but the precipice is narrow, easy to fall from--and the drop can be quite rapid.