Kmart Corporate Strategy
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Historical Background
Kmart started off as a discount retailer successfully pioneering the same concept as that of F. W. Woolworth. As stores began to grow and diversify, Kmart stepped in and took the lead role in offering a one-stop shopping center that fulfilled everyones needs. As new niches began to emerge offering larger, more specialized stores, Kmart hit a major hurdle. The successful management strategies it had developed early on were now outdated and in major need of being renovated to coincide with changing market place and customer values. As Kmart attempted to revolutionize its image and infrastructure, stores such as Target and Wal-Mart took over as the leaders in the discount retailer arena. As Kmarts image began to sink along with its customer satisfaction, sales began to drop, ultimately resulting in Kmart declaring bankruptcy. After declaring bankruptcy on January 22, 2002, a new management team is ready to make a comeback with a well-defined position and once again become a strong, dynamic and profitable company. The biggest problem facing Kmart as it emerges from bankruptcy is how will it differentiate itself from its competitors in the very competitive discount retailer market?
STEP Analysis
Beginning in 1879, Kmart has been one of the largest discount retail stores. By 1950 the company needed a new direction and with the help of a new CEO, changed to become the Kmart brand that most of us are familiar with today. Decades later Kmart would again need to shift but would fail to provide a new direction that would successfully reposition the firm in the fiercely competitive environment. Kmart consists of both Kmart Discount Stores and Kmart Super centers. The Kmart Discount Store consists of general merchandise and convenience items. The Kmart Super adds to that a section for groceries. The store also handled merchandise through an e-commerce site, www.bluelight.com which is now www.kmart.com.
Kmart technology in the early years was very appropriate to what was available in society. It consisted of mail-order catalogues, a full-line of department stores and self-service. Now, since customers are shopping on-line, Kmarts mail-order has become antiquated and is no longer useful. Additionally their website has not been as successful as their competitors and they have struggled to implement new technology successfully.
Kmart tried competing by increasing their discount sales in stores, offering coupons to customers and growing the “Blue Light Special” feature which offered even great price reductions. But with Wal-Marts “Always Low Prices” and Targets stylish clothing lines there was no competition, Kmart became known as a cheap store with poor quality items. It was also difficult for Kmart to compete because of their failed attempts at branching out into multiple markets. Whereas Wal-Mart consist of Sams Warehouse, Neighborhood Stores and International Stores and Target which consist of Mervyns and Marshall Fields, Kmart was not able to find a successful mix of additional stores and came back to trying to sell through their Kmart stores alone. As a result their market share continued to dwindle.
The Kmart Super Stores one stop shop consisted of the following departments: grocery, clothing, electronics, restaurant, a coffee bar, and laundry and auto services. The Super Kmart was also open 24 hours a day, 7days a week.
Two of the threats Kmart encountered were cultural differences and geographical location. Kmart also targeted customers that were females, 25-45 years old and with the income of $20,000-$50,000.
Five Forces Analysis
Porters Five Forces Analysis will help show how Kmart Corporation has competed in the past and can improve their competitive advantage in todays market. The analysis focuses on five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
Five-Forces Analysis
FACTOR
LEVEL
TREND
COMMENTS
Threat of New Competitors Entry into the market
Medium
Consolidation and more Internet based competition
The resources required to start a new “brick and mortar” discount superstore concept are very high and competing with established chains would make it difficult for a startup.
The Internet has changed and will continue to change how people shop and new competition through the Internet will continue to shape the market.
Power of Suppliers
Steady
The depth of the product line and buying power created by the potential volume makes the threat of suppliers a relative non-issue.
Buyers
Increasing
Buyers have many more options for low price merchandise resources especially with the Inter-net.
Buyers are increasingly price-sensitive and value conscious and are more likely to make purchasing decisions based upon perceived pricevalue.
Location, selection, and convenience are increasingly important competitive factors.
Substitutes
Increasing
Substitutes for the discount store are many and include established stores and the Internet.
Switching costs are very low.
Rivalry
Increasing
Wal-Mart, Sams Club, Cost-Co, Target, Amazon.com, and etc are all targeting the same consumers and continually adding value andor discounting prices.
Kmart will need to re-establish themselves as the low cost leader in order to reacquire and add to their customer base.
The level of threat to the industry is relatively high with competition from the Internet changing the face of merchandising the most. Big names like Wal-Mart and Target will continue to be the largest rivals and, like Kmart, they will be developing and growing their Internet business models to be competitive. Kmart will need to redefine and re-establish their relative position in the marketplace by increasing brand awareness and the quality of their customer service. Updating their stores with newer, more modern appearances and conveniences that make that an easier task will require substantial investment.
Internal Functional Analysis (using appropriate ratios and DuPont Analysis)
The Kmart Corporation is setup as a top down structure. Only recently did Kmart implement a technology infrastructure that would allow them to track and order inventory. Kmart headquarters is responsible for monitoring