It’s difficult to remember when Kmart wasn’t known for its drain-circling tendencies. At one time in the discount store’s history, parking lots were full, business was booming, and people, you know, actually wanted to shop there. However, by most accounts those days are a distant memory for the chain. Sales have consistently dropped, each new year brings about additional store closures, and it’s hard to see how the brand could revive itself. What happened to make people care so little about a store that was once the largest discount retailer in the country?
It’s a well-known fact that in their heyday, Kmart stores were the envy of Walmart founder Sam Walton. But while Walmart still reigns with its promise of “always low prices,” Kmart has slipped further into oblivion. The company originally filed for bankruptcy in 2002, making it the largest bankruptcy of a retailer in history. At the time, it trailed only behind Walmart and Target, but still was unable to keep afloat. The company later became a unit of the Sears Holdings Corporation, an outfit that has had its own shares of trouble in recent years.
At the end of last year, sales in Kmart stores fell 7.2% in the fourth quarter of 2015 — a time when even struggling companies tend to get a boost from holiday sales. Following that (and similar declines in the Sears brand), Sears Holdings announced in February 2016 that it would close several under-performing storefronts, adding up to about 30 Kmart stores by April 2016. Then in April, the corporation announced another round of store closures for the summer months, totaling another 68 Kmart closures across the country. With the summer closings, there will be fewer than 900 stores nationwide, according to data from Fortune.
The demise of Kmart
Though 900 stores (give or take a few) is nothing to sneeze at, it’s far from the glory the brand once knew. Even just five years ago, there were more than 1,300 Kmart stores across the country. At the height of its glory days in the early 1980s, the company operated 2,000 or more stores. Sales have plummeted from $37 billion in sales from 2000, to less than a third of that in recent years.
So what happened in between? There are many factors at play, but experts point to the late ’80s and ’90s for when the wheels started to come off. At that time, the Kmart Corporation bought several other unrelated brands, including the Walden Book Company, Office Max, Borders, and several other companies. Diversification is often a good thing, but in this case many analysts believe Kmart lost its focus. Many of those companies were sold off a few years later to try to regain funds, but the downward spiral was already in motion. Another complaint among experts and customers alike is that the companies don’t invest in updating their stores, automatically giving a dated feel to the brand.
Others blame hedge fund manager Eddie Lampert, who bought Kmart after its bankruptcy and engineered the new ownership under Sears Holdings. Some suspect Lampert was never going to fully revive either Kmart or Sears, though they debate whether it was intentional or whether Lampert’s hedge fund wizardry simply didn’t translate to managing retail stores.
No brand strategy
But among the myriad of issues with Kmart, none are quite so damaging as the fact that no one really knows what the brand stands for, or how it’s supposed to benefit its customers. Compared to its main competitors, Kmart has failed dismally in this area. “We believe that all successful companies — Walmart and Target included — know precisely how they provide value for customers. They make a deliberate choice about their “way to play” in the market, guided primarily by what those companies do uniquely well: their distinctive capabilities,” wrote Paul Leinwand, the global managing director for Capabilities-Driven Strategy and Growth at Strategy&, PwC’s strategy consulting business.
As Leinwand posits in the Harvard Business Review article, Walmart and Target were both able to define themselves clearly, and stay true to that definition while also adapting to the changing marketplace. Walmart, for example, prides itself on the aforementioned “always low prices,” meaning it chooses products with which it can offer a deal and still capitalize on a profit margin. When margins are too close, like with big appliances and high-end furniture, the store passes on carrying the items.
Target also focuses on price, but instead chooses products that convey a sense of style and fashion for a reasonable price tag — a strategy Leinwand refers to as mass prestige. “In product and service mix, Target is similar to Walmart in many ways, but Target satisfies the needs of its younger, image-conscious shoppers by stocking more furniture, clothing and exclusive designer merchandise than Walmart,” he writes.
Kmart, on the other hand, hasn’t been able to successfully define how it provides value to its customers over time. Sure, they offer decent prices, but they’re not always the lowest. They’re also not known for their designer labels and make unsuccessful efforts to highlight the ones they do carry.
“Long term, retailers have to have a reason for existence that customers love. What do you love about Kmart?” asked Sid Doolittle, a former retail executive and retired founder of McMillanDoolitte retail consulting firm in Chicago, told Ad Age. “There’s nothing really.”
Kmart has done its due diligence to try adding to its brand value in recent years. The chain started the “Shop Your Way” program, which gives rewards for shopping at Kmart, Sears, and other partner stores. However, aside from rewards, it’s unclear how the program will be able to redefine the store’s approach to offering products.
In February 2016, Kmart announced it would begin selling off the goods from other companies who had declared bankruptcy. “The path to making Kmart great again starts with sourcing truly brag-worthy deals,” said Kmart President Alasdair James, touting the move’s “extreme value proposition.” One of those product lines includes smokers, outdoor cookers, and other equipment from Brinkmann, which declared bankruptcy in 2015.
Extreme value for home goods is one thing — and time will tell if the strategy is successful. However, a January 2016 survey of 3,917 American women by Prosper Analytics & Insights shows that very few women prefer shopping at Kmart for clothing. Kmart is the favorite clothing retailer for just 1.4% of those women, while stores like Kohl’s, Walmart, and Macy’s make up the favorites for 9 to 14% of women, respectively. The only silver lining (and it’s tissue-paper thin, to be sure) is that Kmart scores ahead of Sears for shopping for apparel, with just 1% of women saying Sears is their go-to clothing store. In fact, even Goodwill earned more than love than the department store.
Time will tell if the new branding and sales strategies will pay off. But even if Kmart is wildly successful, it will take some serious time and effort to make people look twice at the store again.