Attention Shoppers: Kmart/Sears Experiencing Technical Difficulties

Discussion
Jun 20, 2005
George Anderson

By George Anderson


Christine Augustine, an analyst with Bear Stearns, has some questions about whether the merger that brought Kmart and Sears together is going to work.


One of the biggest areas in need of improvement – the company’s supply chain management – is also one of the least likely to be fixed because it would require a major financial
investment in new information systems, believes Ms. Augustine.


According to a report in the Chicago Sun-Times, the analyst believes Kmart continues to suffer “chronic out-of-stock problems” because of its “unsophisticated replenishment
system.” Sears has also had problems with inventory management, which Ms. Augustine believes signals a need for better “merchandise-planning and allocation systems.”


Failure to fix its technical problems means shoppers at the stores can expect continued out-of-stocks in Kmart and marked down merchandise at Sears, believes Ms. Augustine.


Moderator’s Comment: Can Sears Holdings be competitive without fixing its supply chain issues? What does the company need to do correct the specific
problems that continue to hurt Kmart (OOS) and Sears (planning and allocation)?


While not directly related in the Sun-Times article, shoppers can also expect to continue paying higher prices at Kmart and Sears because of the
inefficient manner in which the retailers manage their supply chains.


According to Christine Augustine, “Kmart’s prices can be 20 percent higher than those found at Wal-Mart or Target. A similar disadvantage is expected at
Sears Essentials, Sears’ new off-mall format that combines brands from Kmart and Sears.”


Edward Lampert and company seem to be hoping that, by moving stores into more affluent areas, consumers a) won’t mind spending 20 percent more for the same
goods they can purchase elsewhere and b) will buy higher priced items such as car batteries and electronics to help offset the dollars lost by out-of-stocks, and markdowns in
areas such as apparel, where too much merchandise has been brought in.

George Anderson – Moderator

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9 Comments on "Attention Shoppers: Kmart/Sears Experiencing Technical Difficulties"


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Ryan Mathews
Guest
15 years 8 months ago

The answer to the question is, “No.” The answer to the question, “Will they invest enough to fix their supply chain?” is sadly, “Probably not.”

Charlie Moro
Guest
Charlie Moro
15 years 8 months ago

Even Wal-Mart looks to Target as an example of good in-stocks and grocers have known for years that in-stocks are the life blood of success. Not only does Kmart not do a good job in this business (they are a distant third), but they do not seem to have the focus on the speed needed to fix it and or to allocate the resources.

Tom Zatina
Guest
Tom Zatina
15 years 8 months ago

After all the hoopla and marketing splash is over, the customer will remember most that they could not find what they wanted. Weak logistics is the Achilles heel for retailers that are trying to compete with WM and Target.

David Livingston
Guest
15 years 8 months ago
I have to agree with Ryan, that Sears/Kmart will probably not invest their newfound billions back into their long dead retail. It would be throwing good money after bad. The new owners of Sears/Kmart would probably not do something so foolish. Sure, they can talk it up for the analysts and open a few token stores, but this seems to me to be about as real as pro wrestling. That is just a dog and pony show for Wall Street which has little to do with reality. Does anybody really think Sears/Kmart is really going to convert and remodel all those stores? When you look at the weekly sales reports by store, the Kmart stores are performing at such low levels it’s hard to understand how they are able to stay open. Even if Sears/Kmart does actually remodel and convert their stores, the competition is not standing still waiting for them to catch up. For a Bear Stearns analyst to question Kmart’s supply chain system is like a racehorse handicapper analyzing the speed ratings for… Read more »
mark shepherd
Guest
mark shepherd
15 years 8 months ago

For years, Kmart has failed to stay in-stock, continuing to lose customers because of it. They are unwilling to put the help in the stores to really make it succeed. The employees could do some ordering if only they had the help to do so.

Martin Foley
Guest
Martin Foley
15 years 8 months ago
Lampert isn’t interested in seeking lost market share, and has said so publicly, just so long as each and every widget sale is micromanaged to profitability. Apparently, if this article’s suggestion is accurate, the direction of the “Holdings” is to fix outward appearance of the business by expensing the transition of Kmart standalone stores into Sears Essentials (4 or 5 hundred of them in the next 3 years), but as far as really fixing the “guts of the business,” such as procuring systems, Lampert apparently isn’t going to put that on his agenda. As long as “Holdings” can attain a profit, whether it be from the elimination of one time charges to the books, or the selling of corporate assets such as the KRC main campus, stores, brands, Sears Canada, Orchard Markets, etc., Lampert probably won’t fix the “Holdings” infrastructure. Why should he? The business will have turned a profit. With Cramer and other “analysts” now covering Sears Holding projecting target stock valuations approaching $180, what incentive would Lampert have to expense changes to fix… Read more »
Richard Layman
Guest
15 years 8 months ago

In the book Matsushita Way, there is one of the founder’s maxim that I quote all the time: “to be out of stock is a sign of carelessness.”

Being from the Detroit area, and remembering Kresge and Kmart, and being a beneficent of Kmart tax revenues paying for my high school education in Troy, everything that has happened with that company has saddened me greatly.

It’s not like the value of technology and supply chain management are new concepts. There were articles in Harvard Business Review that specifically mentioned this with Wal-Mart in the early 1990s.

Knowing what you’re about, and executing is what it’s all about. Kmart has been struggling for almost 20 years because they didn’t (first with unsuccessful TJ Maxx clones that I’ve forgotten the name of and then through acquisition of other concepts–Builders Square, Office Max, Sports Authority, and Borders) and still must not know.

People can’t buy what you don’t have to sell. If that isn’t the number one responsibility of management, I don’t know what is.

Mark H. Goldstein
Guest
Mark H. Goldstein
15 years 8 months ago

With Kmart, 40% of the Sunday ROTO sale items continue to be typically out of stock by Monday PM. No silver bullet gonna fix that.

Cheryl Orcutt
Guest
Cheryl Orcutt
15 years 8 months ago
You can market anything, but once the customer steps across the threshold and experiences lack of delivery, they are left with an impression that all the advertising in the world can’t turnaround… I was involved with upgrading Kmart’s inventory and distribution system (contractor). During Conaway’s brief tenure, he was attempting to tackle the distribution issues. In fact they completely built a state of the art distribution center in upstate New York. Kmart never moved in and, ironically, Target bought it. Lots of money was spent, but none of the benefit realized. I’m sure there were other distribution center locations throughout the US that didn’t see the light of day. Bankruptcy closed in fast and all these projects quickly vaporized. Yes, it will cost huge sums of money to get distribution and inventory on track. Will it happen? Unlikely, since investors rarely back long range solutions. We’ll hear lots of stories of synergy, yet Kmart’s sales continue to decline. If it were my call, I would strongly recommend developing a capital expenditure budget for upgrading their… Read more »
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