Taking the Super Out of Kmart

Discussion
Jul 06, 2005
George Anderson

By George Anderson


The decision by management to close three Super Kmarts in the Memphis, Tenn. market has increased speculation that the chain and its Sears Holdings parent intends to get out of the supercenter business altogether.


David Livingston, principal of DJL Research and a member of the RetailWire BrainTrust told The Detroit News, “They (Kmart) never did well with this concept, and it never did take off. They never had the skill to operate supermarkets.”


Kenneth Dalto, a retail analyst in Farmington Hills, Mich. said, “They are trying to compete with the Wal-Marts of the world, and that’s not Kmart’s market. They’ll never be able to compete with those guys on price, and Super Kmart will probably go by the wayside.”


“When you look at Sears and Kmart together, there is no food company there,” said Gary Ruffing, a retail analyst with BBK Ltd. in Southfield, Mich. “This is something Kmart never made a commitment to, and I don’t expect Sears to. If somebody walks in and says ‘we want to buy super centers,’ they would sell them.”


Moderator’s Comment: Should Kmart and parent Sears Holdings get out of the food business or is there an opportunity for the company to fix what is clearly
broken?


We thought when the Sears Grand concept came into being that it was simply a matter of time before most of the Super Kmarts were converted to that format.
It would appear that is not the case. Kmart will have one Super Kmart open in the Memphis area after the other three (Memphis and Cordova, Tenn. and South Haven, Miss.) close.


George Anderson – Moderator

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14 Comments on "Taking the Super Out of Kmart"


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David Livingston
Guest
15 years 7 months ago

While Super Kmarts typically have done poorly, the Memphis stores were doing about as poor as you can get ($1-2 per sq. ft. per week). While the competition is tough, the beatings these stores took was self-inflicted. Their closings were long overdue. I don’t think there is any question Kmart should not pursue any more food store ventures. Super Target is faring no better in food. Most of their “food ops” are well below industry averages in sales per square foot, however I am seeing some minor improvement which is encouraging. I’m not really sure if Kmart/Sears is seriously interested in fixing any of their problems. It will take a lot of cash to restore this old junker. I’m not convinced that Kmart will throw good money in to a wreck that has been “totaled.” I’m still waiting to see those 61 Sears Grand stores open that were announced last year. I have a feeling the wait will be a long one.

Don Delzell
Guest
Don Delzell
15 years 7 months ago

The problem here is that Sears Holding has yet to clarify the market positioning of the format(s) they intend to operate. Should the Supercenter be one of those formats? I agree with the straightforward observation already made. Kmart never did this well, it’s very far off of Sears core competencies, and the landscape is already fairly well occupied.

The margins food operates under requires operational excellence, and experience in controlling waste. Nothing about either Sears or Kmart indicates that they have these particular competencies. Nor does it make sense to try to acquire or develop them. Outside of capturing more of the market basket available from the footsteps already in their stores, there simply is no raison d’etre.

Bluntly, Sears Holding cannot afford the luxury of multiple format operations until they have refined and demonstrated the ability to be good enough at any one of them to compete long term.

Warren Thayer
Guest
15 years 7 months ago

It’s never worked for them. They lack the tools and the depth, and shoppers don’t think of groceries when they think of Kmart. Getting out of that business is already long overdue.

Ron Margulis
Guest
15 years 7 months ago

The only way to save the grocery business at Kmart is for them to partner with innovative supermarket operators. How about teaming up with Marsh in Michigan and Ohio, or Schnuck’s in Missouri and Tennessee? This would prove the common perception that Sears Holding is actually a real estate company, but could also create some interesting synergies. And what’s in it for the supermarket operators? Well, there is that old saying that an enemy of my enemy is my friend.

Ben Ball
Guest
15 years 7 months ago

That Searsmart should get out of the food business is obvious. What is not so obvious is that closing the supercenters would confirm that Sears Holdings is just a real estate company. Maybe it just proves that Sears is going to get back to being Sears (Grand or otherwise) in the Kmart locations it keeps. The decline of mall traffic quality has been a drag on Sears for a while. And no one wants to have to haul their white goods out of a mall location. Stand alone stores served Sears well in the past and they could again.

Karen Kingsley
Guest
Karen Kingsley
15 years 7 months ago

Kmart is so lost right now, and their image is further confused by the merger. They need to return to their core values, get their bearings, and then consider how to branch out.

If they feel a need to be in food to be competitive (which I personally don’t think is a good idea for them), I like Ron’s idea of partnering with an established food merchant.

Bob Bridwell
Guest
Bob Bridwell
15 years 7 months ago

Kmart has tried the food business since the 70’s in several versions. None has worked for them. Super K’s are just the latest disappointment. I doubt that Marsh or Schnucks would have any interest as someone earlier suggested. The demographics don’t seem to fit. A store-within a store with a Save-A-Lot might, but the rent would have to be mighty low for that to work either. It’s time to pack it in.

James Tenser
Guest
15 years 7 months ago

I’m with the consensus on this. Tighten up the SMart operations and ease out of the grocery business with all prudent haste. The supercenter concept won’t work in the absence of high turnover and most Super Ks don’t seem to generate that. Furthermore, the Sears/Kmart combo has best potential as a “house of house brands” – a concept that clashes with the grocery combo approach. Now’s the time to pick one thing to be.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 7 months ago

In the 70s, we in the supermarket business were outraged — Outraged! — when drugstores started advertising and selling toilet paper (bath tissue for the sensitive crowd) at below-cost retails. TP was OUR product, and drugstores had no right invading our territory.

Of course, the drugstores did it for the traffic. They made no money on the TP, but traffic counts increased significantly. And the race was on.

This lesson was not lost on Wal-Mart, which incorporated low-cost grocery products as soon as possible to generate traffic. I’ve asked this question previously in this space, and have yet to receive an answer: Does anyone know for a fact that WM’s grocery departments could stand on their own as supermarkets, or do they need the profit mix from all the other stuff to remain in business?

For Kmart and other mass merchants, groceries equal traffic, no matter what grocery market share they claim.

Justin O
Guest
Justin O
15 years 7 months ago
Newsweek cover story– Eddie Lampert Next Warren Buffet… Again, we’re continuing to see a steady sell off of Kmart’s real estate. The answer for what now seems to be predictable negative double-digit comp sales is to put stores on the chopping block. I live in a community where the median family income is well over $100,000 a year and we have a Kmart that is blighted at the far end of the city. Council members have called Eddie himself to plead for a Sears Essential to be constructed on the site because looking at the numbers alone wouldn’t tell the whole story. My point is that for as much butchering as they have done to Kmart’s store base, there are still some quality locations that will be misleading if looked at from a ledger standpoint at headquarters. Have we not figured out that the demise of Wal-Mart’s domestic business is the grocery business??? They can have 80% of the grocery market, for all I care. Between store cannibalization and paltry margins, they’d better hope that… Read more »
Mark H. Goldstein
Guest
Mark H. Goldstein
15 years 7 months ago

Sears should continue to run from food and, at best, offer a limited assortment on the level of Walgreens/CVS. They don’t have critical mass and will never be able to message the benefits of Super K above the noise of the competition. This was a great idea by Floyd Hall in the day but to win it required continued enhanced execution and, well, Kmart has had 5 or 6 CEOs since then!

todd sullivan
Guest
todd sullivan
15 years 7 months ago

Based on Lampert’s history, I would think he would stick to those areas that generate cash. Grocery is not one of them. At AutoZone, he streamlined operations and had them focus on those areas that were most profitable. Look at your local grocery store. You’ll notice even they are offering more and more non-grocery items (books, lawn items, etc.). Even those who are the “professionals” in this area realize that margins in grocery are razor thin and they are trying to offer more diverse items … razor thin margins are not Lampert’s cup of tea. Even Wal-Mart spun off its foodservice division to Berkshire a year ago. I would be willing to bet by the end of next year there will be few if any supermarts left.

Mike Jamerson
Guest
Mike Jamerson
15 years 7 months ago

I agree with comments above that identified grocery as a traffic builder. Point is well taken that grocery is low margin and requires superb to excellent execution.

If I were running Sears/Kmart, to get around this I would maintain limited grocery offerings with hot deals on special buys. I would stick to Dry Grocery and not be involved with perishables (meat, dairy and produce). That would eliminate the most labor intensive departments.

Kmart should carve out categories that they try to own. Example: “When you think about your baby…..think Kmart”…..One stop shopping — from toys, strollers to formula and hot priced Gerbers baby food.”

You can do the same with several categories; Pet, Holiday Baking, Summer Barbeque, Super Bowl Entertaining. There are numerous seasonal opportunities where consumers purchase hard goods and grocery that Kmart can build a plan around. Supermarkets try this, however they are weak on the hard goods. I mean I am not going to buy my patio furniture from Safeway. The seasonal merchandising concept can be very strong.

joseph fisher
Guest
joseph fisher
15 years 7 months ago

A grocery presence similar to the conventional WM makes sense. Kmart never understood or made the infrastructure commitment required to master the perishable side of the grocery business. Kmart’s exit from supercenters is just a matter of time.

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