K mart's store therapy: 'Oak Park look' to revive discount stores

Discount Store News, March 12, 1990 by Arthur Markowitz

K mart's Store Therapy

`Oak Park Look' to Revive Discount Stores

TROY, Mich. -- K mart Corp., plans to spend over $2.3 billion through 1994--about double the commitment announced just last year--to try and breathe new life into its stagnant discount stores.

The effort, revamping the chain to follow the sophisticated merchandising presentation first displayed in the Oak Park, Mich., store opened last fall, will touch each and every K mart to some degree as it unfolds over the five years.

It involves enlarging 620 K marts, relocating 280 others and closing 30 stores, all to be completed by 1993, along with refurbishing 1,260 units and opening 250 new outlets, 50 a year, through 1994--with each K mart showing off what the discounter calls the "Oak Park look."

Apart from the $2.3 billion program for the discount stores, the diversified retailer is developing a separate capital spending plan for its specialty store operation. The amount hasn't been determined but is expected to be much less as the needs of the specialty stores aren't as pressing as the discount stores.

K mart chairman, president and chief executive officer Joseph Antonini said the accelerated capital spending program for the K marts "will strengthen the company for the future ...is the best investment we can make in our core discount store business and clearly demonstrates the company's commitment to discount store retailing. In essence, we are making the right changes, right now."

The $2.3 billion, five-year capital spending plan for K mart updates the $1.3 billion commitment Antonini announced in October 1989 (see DSN, Oct. 30, 1989, page 1) when the company first addressed the growing concern about the discount stores' lackluster performance.

The corporation acted as sales at the K marts have slowed down and the discount stores face growing competitive pressure from four major general merchandise rivals.

Sears last year launched its own modernization program that is revamping its stores into a collection of specialty stores. Previously, Montgomery Ward undertook a similar revitalization move. Wal-Mart continues its torrid growth program, narrowing the sales gap between itself and K mart, with many trade observes even speculating that the company will become the largest retailer in sales within the next two years. Target, meanwhile, has strengthened its fashion merchandising focus as well as bolstering its position in markets like the Pacific Northwest and Michigan entered during the past few years.

The $2.3 billion capital spending program will be used for new stores, fixtures and other physical structures. It doesn't cover merchandise nor any expenses incurred for the store closings, enlargements or refurbishments, asset write-offs for furniture and fixtures, settlement of leases and other non-recurring charges that will result from the rebuilding effort.

K mart Takes $640M Charge

K mart has taken a one-time $640 million pretax charge against last year's results to cover these non-recurring expenses. This charge, expected to total about $422 million after taxes, could result in the company reporting little or no net income, or even a loss, for last year when 1989 fiscal results are announced.

The one-time charge is separate from the $2.3 billion program. The corporation doesn't anticipate turning to any outside direct financing to fund the capital spending program, a spokesman said. "No financing plan has been set aside for the program."

The company has budgeted about $800 million in overall capital spending in 1990, with only about $350 million directly related to the $2.3 billion revitalization program. This means about $2 billion will remain to be spent during the subsequent four years.

The remaining approximately $450 million from the 1990 capital spending plan will be spent on completing the installation of POS terminals, other retail automation systems and a satellite network chainwide for the K mart operation, along with opening and refurbishing stores for its specialty chains--Pace membership warehouses, Waldenbooks, Payless Northwest, Builders Square, Sports Giant and K mart Canada.

Prior to committing to its rebuilding program, K mart tested the viability of its look of the '90s through the opening of the new store in Oak Park, Mich., and the refurbishing of the Rochester, Mich., unit last fall (see DSN, Sept. 4, 1989, page 1), and then followed up by remaking the Virginia Beach, Va., store.

The discounter took a "zero-based budget" approach to designing the new prototype, the spokesman said. "We said let's forget what a K mart looks like and instead focus on how would we design a discount store today, what would we want the store to look like, what fixtures, adjacencies and merchandise would we want?"

The three ground breaking stores picked up a number of concepts used in American Fare like fixtures on wheels for flexible displays and easy replenishing of goods, along with other ideas like shelving that holds full-pack quantities to cut down the need for stockroom space.