Experts: Kmart Not Long for This World
By George Anderson
There’s a scene in Monty Python and The Holy Grail where a cart is pushed through a village carrying people who have died. The cart-master calls out, “Bring out your dead!” as they move through the village.
A villager carrying an old man approaches the cart-master and says he has a dead person for the cart. The old man being carried has another assessment of his deadness, protesting, “I’m not dead!” and “I’m getting better.”
For many retail watchers, the scene played out in this movie has a striking similarity to what has been happening at Kmart.
Despite the protests of the old man to the contrary, it wasn’t long before the lure of money from another source (the villager carrying the soon-to-be-deceased) was enough for the cart-master to hit the old timer over the head with a club and add him to the pile of former people already there.
Since the merger last year with Kmart, the retail chain has made numerous announcements about its impending comeback with little evidence to support it. Now, many wonder, how long will it be before its cart-master (AKA Edward Lampert, chairman of Sears Holdings) shuts off the lights once and for all.
Howard Davidowitz, chairman of Davidowitz & Associates, told The Detroit News, “The Kmart brand name is gone. If you were going to keep a brand, you wouldn’t be closing more stores. (Sears) is going to milk this brand for everything that it’s worth, and then it’s going to disappear.”
“It’s never been about driving customers,” Mr. Davidowitz added. “This is about realizing cash from a cadaver and getting the most from your assets. As far as a retail entity … it’s looking like a failed retail enterprise that can never compete on the retail battlefield.”
In September, Mr. Lampert issued a statement concerning the approach the company intended to take with Kmart and Sears. “We intend to build on the historic strengths of both companies, while overcoming some of the more recent weaknesses.”
While a small number of Kmarts around the country are testing the sale of Sears branded products, such as Craftsman and Kenmore, in stores, no Sears locations have taken on Kmart exclusive brands, such as Martha Stewart Everyday, a year after the merger between the two struggling retailers was completed.
Credit Suisse First Boston analyst Gary Balter recently wrote that the lack of customer traffic at many Sears Holdings locations is setting the stage for “major real estate sale.”
“Bring out your dead.”
Moderator’s Comment: Are Kmart and Sears beyond the point of reviving? What would it take to keep them from following Two Guys, Alexander’s, Bradlees,
etc. into the place where defunct retailers go?
Ulysses Yannas, an analyst with Buckman, Buckman & Reid, thinks it will take topnotch people to get Kmart and Sears turned around.
As for his assessment of the people currently attempting that, “I don’t think they have the right people in place to improve a tough situation.”
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George Anderson – Moderator
All retailers, just as do consultants, think all retailers mortal, but themselves. With an unusual new owner in Ed Lempert, we still have to see if he can do for Sears, and even Kmart, what he has accomplished in those businesses that afforded him the opportunity to buy Sears/Kmart … but the clock is ticking.
Kmart’s stores minus a few, (i.e. Manistee, MI is a wonderfully kept Kmart), are in terrible shape. Their decor, their cleanliness, their lighting, and their product selection is awful.
It’s too bad because I have fond memories growing up with Kmart…yeah, it was always considered cheap, but it was a place my mother shopped for her garden needs, her basics and it was a half-way decent store. Kmart has always found a soft spot in me because of the motherly memories, especially around Christmas time!
Then the late 1990’s rolled in and the Wal-Mart Revolution hit…. Why go to a store in which the facility itself dates from the early 1960’s and has never been remodeled, when you can go to a new Wal-Mart, Meijer, Kohls, or Target and get the same type of products in a new, cleaner environment? Wal-Mart was replacing smaller outdated facilities it built in the early 1990’s, with new facilities just a few years later, while Kmart focused on keeping the stores that featured miles of old inefficient strip fluorescent lighting, 20 foot wide air conditioning vents, and yellowed ceiling tiled stores alive.
The biggest mistake besides inventory replenishment at Kmart was the fact that they did not extensively remodel their existing store base. When most retailers remodel a store, they gut it to the hull and redo the exterior too. They put in new lighting, ceilings, HVAC, millwork, graphics…they don’t just throw up some new signs and call it newly remodeled. That was the big mistake with Kmart. I believe Kmart was too busy focusing on Borders Books and Builders Square.
I feel bad for all the employees at store level, especially the veterans, who have tried to make Kmart work…they want to make it survive.
This question will be a lot easier to answer after Xmas. Let’s see what the comp sales and profits will be for the only quarter that matters. Sears and Kmart were run by expert Sales Prevention leaders for a generation. Maybe it will take some time for the chemotherapy to kill the Sale Prevention culture. Of course, sometimes the chemotherapy kills, and sometimes it is too late.
As far as bringing Martha to Sears, that might not be permissible or profitable under the license agreement. Yes, the brand helped the Kmart image, but it isn’t clear that it was actually a profit generator. I’ve worked with both licensees and licensors. Often the terms are so expensive or so restricted that profit potential is minimized.
Since he’s an outsider, it’s easy to make fun of Eddie Lampert and belittle his capabilities as an executive of a retail enterprise. But there’s no doubt that he’s a supersmart guy, and maybe his outsider perspectives are exactly what Kmart and Sears need.
I’m willing to give the guy a chance, and I’m very interested to see what kinds of strategies and tactics he’ll employ. It surely won’t be the same old stuff. Whether he succeeds or fails, the retail world needs smart outsiders like him to try new approaches and learn from them.
It is always easiest to be an armchair quarterback in assessing a business. The challenges for Sears and Kmart are vast. These issues cannot and will not be solved all at once. However, the promises coming out of Hoffman Estates seem like there is a broad brush approach, to the business, not a plan to exploit the obvious successes.
If we go back to 2000 and look at the new CEOs at Kmart, Sears, and JCPenney, it was obvious back then that Penney was likely to be the only success story of the bunch. There are several reasons for Penney’s resurrection. However, two clear reasons are 1) visionary leadership (not just Allen Questrom., by the way) who focused on the merchandise and marketing message 2) a timeline that clearly told Wall Street the fix would be gradual and consistent. This approach has delivered sustained long term top and bottom-line growth.
Retailers are only successful when the merchandise and marketing are compelling, consistent and intriguing to both existing and potential customers. Back end controls are a short term fix. Sears and Kmart fail to embrace this concept, fully.
Sears and Kmart have a wealth of merchandise assets. I may be naive, but without a visionary merchant and marketing team at the helm to exploit the assets and minimize the failures, Sears and Kmart will continue to be lost…and potentially doomed to the retail graveyard.
Kmart and Sears will slowly fade away as they struggle to establish themselves in a world of EDLP and Hi-Lo pricing. This will mean that unless they dramatically change, they will be overcome by their competition (Home Depot, Wal-Mart, Target, etc.) This is also a great example of a union where the value of the parts is greater than the whole. With each passing quarter, this will serve as a chisel dividing the company’s shareholders until there is little choice but to sell the parts of the organization to maximize shareholder value.
Whatever Kmart should do, they are not going to do it. And it would be just plain dumb to spend the money to try. When reviewing the sales volumes per store, I cannot understand how most of the Kmarts are able to keep the lights on. You don’t have to be a Wall Street genius to know that $2-3 per sq. ft. per week doesn’t cut it. The stores are nice and clean because no one is in there messing them up. Inventory is spread out and false fronted. Most stores only have one checkout open and pretty much steer customers to the self-checkouts. Has anyone seen a Kmart TV commercial? I haven’t. Recently I was visiting a small town that had both a Super Kmart and a Wal-Mart Supercenter, both about the same size and within close range of one another. Super Kmart had weekly sales of about $335k per week and Wal-Mart Supercenter was $1.45 million per week. I’ve that same scenario played out all over the country. I’m not sure why Kmart keeps releasing news they are reviving the brand when everyone can see they are not. They have to do a bit more than just hiring some MBA with bad hair and briefcase. Sears probably won’t last either. The competition is too smart and too fast. Target, Wal-Mart, Kohls, Home Depot, etc are rapidly expanding and building stores. Sears and Kmart are closing stores. Do the math.
I wouldn’t dig Sears’ grave just yet. The two stores I visited recently were packed with shoppers. Soft goods were mercifully down to minimal square footage and Sears’ strength in hard lines was being exploited for all it was worth. Plenty of friendly, helpful, smartly-uniformed staff, and easily the busiest department store in the mall (versus a May store and JCPenney).
Dead man (read Sears) walking! They don’t have time for trial and error. They are groping for a strategy that will work. We are entering a period of time when the Sears target customer is being squeezed by higher interest rates, higher heating and gasoline costs, increasing inflation and rising medical expenses. The competition for this customer’s expenditures will be fierce. In this type of economy, Darwin’s natural selection will prevail. Between Wal-Mart, Target, JC Penny, Home Depot, Lowes, and Sears, who do you think will survive?
I think the saddest thing about the demise of Kmart (which may or may not happen) would be even less variety and competition. I remember when Kmart was at the top of the heap. There were still stores such as Caldor, Ames, Jamesway, Bradlee’s, etc., as well as a smaller Wal-Mart and Target. When I was a kid, there was a popular discount department store called Gold Circle, which was owned by Federated. It was a mile away from a Kmart, and both were always busy. It seemed that when Kmart was at their peak, the other stores were not annihilated.
One cannot fault Wal-Mart for climbing to the top – the others would have done the same thing if they had leadership that could have done it. But I wonder what will happen if it comes to the point where the only two discount department stores will be Wal-Mart and Target. Will Wal-Mart do what Barnes & Noble did – increase prices? I recall how Barnes & Noble deeply discounted bestsellers, and also discounted all (or most) other books 10%. Once they drove all the other bookstores in their areas out of business, they all of a sudden could not afford to give discounts like that any more. I always thought that was really sleazy.
The answer is 50/50. Kmart, sadly for the innocent hurt by them, will be gone. Sears is a major brand, and its sub-brands like Craftsman and Kenmore are valuable and could stand on their own. If Sears as a whole were to fail (which could happen), these brands could be sold on their own…much as when A&P sold Eight O’Clock Coffee.
The whole landscape has changed and any model that is left that Kmart could mold to in the time they have has passed them by long ago. The Martha Stewart brand is waning and will continue to be of less value, in spite of what short term numbers might indicate. It’s worthless as a future. In fact, I don’t even think it equates to one tenth of the value of the Sears brands.
Neither one of these companies can exist as they do today. In fact, the ‘department store’ type format itself will look totally different in 5 years, not to mention that Kmart can almost be as easily forgotten as Wards is today. Remember them?
A few weeks ago, the Denver area got its first Sears Grand, and I drove all the way up there (18 miles north of downtown) to see if Sears had knocked one out of the ballpark. Out of the beltway, to be sure–but it was nothing like a home run. As it was grand opening time, the store was neat, clean, well-stocked and overstaffed (and it even had a Denver Bronco on hand to sign autographs). The layout was logical, although the juxtaposition of Fruit Loops and Cuisinarts seemed wrong–if they’re going to do groceries, they should do groceries, not just dry goods.
I wanted a simple thing: a space heater. The young woman at the door said, “Try hardware.” The man in hardware walked me over to an open line of sight and pointed to the other end of the store, saying, “Over there in housewares.” After going up and down every aisle in housewares, I found another employee who nicely said, “It’s not my department, but I’ll see if I can find someone who knows.” He led me all around housewares again, but couldn’t find a housewares expert. He suggested I try the appliance section–which was right next to hardware on the other side of the store. I traipsed over, but found only large appliances–nothing small.
I waited nearly ten minutes in line to pay for three bungee cords, staring at supermarket tabloids as I waited (and this is supposed to be more upscale than Kmart?). I bought the space heater at the empty Office Max on the other side of the parking lot.
Sears Essentials is an even less compelling experience. The Kmart they remodeled in southeast Denver was built in the 1960s. The new linoleum is installed over an uneven floor, the architecture is 1960s Kmart coated in white paint, and the parking lot is nearly empty whenever I drive by. Oh, and the lot itself needs re-paving.
It won’t be over until someone sings, but the naysayers on this board are more likely to be proved right. Although, to answer D. Livingston’s question, I saw a TV ad the other night for a Martha Stewart Everyday pre-lit tree for $179.99, and I’m thinking of seeking one out. Of course, they’ll probably be out of stock.
Oh No! The Place Of Defunct Retailers (PODR)! (Legends say it’s near the Elephant graveyard, but who knows for sure?)
For George Anderson, I absolutely loved your opening Monty Python analogy.
My view of the PODR is that it’s populated by small and large retailers alike, many of them victims of the Wal-Mart sprawl. Why is it that we deeply examine the possible demise of a Kmart, yet disregard the thousands of small businesses that die each year? I have a deep affinity for Kmart – counting Chicago’s S.S. Kresge Co. as my first customer in my first business while still a college senior – but things change. Kmart still owns real estate and brands, and will exit with dignity, if at all. Isn’t that all one can hope for?
And for Mark Lilien, it’s Christmas, not Xmas. You could look it up.
Even though the words were spoken there will be no return for Sears and/or Kmart. They will live on in department store heaven. This was a real estate play, plain and simple — although a big one. Sears had a great name and private label line, but was out of tune with younger shoppers. Kmart simply got run out of business by Wal-Mart. The culture, organization structure and operational design will not be able to return to glory. These are two companies that thought they were great and at one time they were. They failed to change, got inbred and lost touch.