Kmart out of sync with business climate

By Joyce M. Rosenberg
THE ASSOCIATED PRESS

NEW YORK - One of the most bewildering aspects of Kmart Corp.'s fall into bankruptcy is that the nation's third-largest retailer could plod itself into the ground even as incredible change swept over American business during the past decade.

This was not an Enron-type situation. Kmart wasn't built on a questionable financial structure that suddenly collapsed. It made its way into Chapter 11 gradually, over a number of years.

Kmart's predicament can be blamed on a variety of factors - incredibly tough competition from discounters Wal-Mart and Target, stores that looked tired and an image that seems outdated.

But the real problem is a corporate culture completely out of sync with the way successful businesses are now run in the United States. Kmart didn't react fast, outthink its rivals or make its customers WANT to shop in its stores.

That's as far to the opposite as you can get from the mindset that allowed the high-tech business to soar in the 1990s and that kept Wal-Mart and Target barreling along.

Interesting factoid: The first Kmart, Wal-Mart and Target stores all opened in 1962.

Wal-Mart got its start in the South and Midwest, focusing for many years on smaller towns and rural areas rather than big cities already saturated with stores. The company infiltrated America, working its way bit by bit to other parts of the country - it wasn't until the mid-1990s that it opened stores in the Northeast - and letting the Wal-Mart reputation for low prices and friendly service precede it. That service, by the way, comes from a work force kept happy with stock options and profit-sharing.

Meanwhile, Target, also growing at a moderate pace, found a way to market itself as trendy - not exactly the kind of image associated with a discounter. But Target is being embraced not only by the middle class, but upper-middle class people who drive expensive cars and give the store a French wannabe pronunciation, tar-ZHAY.

And then there's Kmart. The company, perhaps misreading the threat posed by its growing competition, was focusing a decade ago on expanding into specialty retailing through chains including Borders and Waldenbooks, OfficeMax and Sports Authority. That had to distract top management from keeping Kmarts competitive.

Then, in the mid-'90s, the company was selling off those chains (another distraction) and directing the proceeds toward Kmart stores that were shabby and uninteresting and badly needed a turnaround.

But Kmart's focus was wrong again - it was trying to beat Wal-Mart at pricing, rather than coming up with an idea or image that would compel consumers to shop there. It got names like Martha Stewart, Kathy Ireland and Jaclyn Smith to market its merchandise, but that hasn't been anywhere near enough of a solution. Kmart still seems downscale, tired, cheap to many consumers.

It's not like there aren't any solutions to be had. In the East, for example, Kohl's stores have expanded by being discounters that look like department stores and are likely siphoning off business from nearby Kmarts.

If this sounds like Monday morning quarterbacking, it's not - Kmart has had plenty of warning over the years that Wal-Mart, Target and others would overtake it. But instead of acting like other businesses, moving forcefully and dynamically, it put itself in the position of being considered superfluous in the retailing segment it helped pioneer.