Kmart - What went wrong?
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Kmart's main weakness was that it had an aspiration to be all things to all people – its dabblings in drug stores, home improvement stores, bookstores, cafeterias and specialty stores in the 1980s and early 1990s seemed to spread the company very thin. This focus on diversification is just one example of how the retailer has often not made the wisest choices when faced with a tight spot.
By the 1980s, just before the rise of Wal-Mart, Kmart had become complacent. It believed it would be the king of discount retailing, now and forever. It didn't perform an accurate SWOT analysis, but to be fair, who could have seen the rise of Wal-Mart to the position of the world's number-one retailer? Still, as Wal-Mart built new stores in town after town, supported by cutthroat pricing and solid logistics, Kmart's complacency would cost them. Part of the problem was that as Wal-Mart was pouring money into information technology (IT), Kmart's IT budget continued to shrink – not just once, but several years in a row. While Wal-Mart's logistics and supply chain management got sharper, Kmart's stagnated. And while Wal-Mart was able to squeeze more value out of its stores and its systems, Kmart lost ground. By the time Kmart had finally decided to start devoting more resources to IT, it was so far behind Wal-Mart that catching up would have been a near-impossible task without the recession in the early part of this decade. With the effects of the recession taken into account, Kmart instead was consigned to also-ran status among discount retailers.
Another problem was that Kmart did not correctly anticipate customer needs. For instance, let's say that Kmart buys a new style of shirt and stocks it in pink, yellow, green and blue. Further, let's say that the blue shirts sell out immediately; the store is left with inventory of the three other colors. Yet Kmart doesn't reorder the blue ones because 75 percent of its inventory is still unsold – it's still got plenty of that style of shirt to sell. Wal-Mart, meanwhile, would order a new shipment of blue shirts. Their model takes the customer into account, not the inventory – Wal-Mart understands that it's the color the customers want, not the style (in this case, anyway).
One of Kmart's biggest marketing miscues was the use of newspaper as its primary ad medium. Until about the 1980s, Kmart's primary form of advertising was flashy, expensive sales fliers that did not generate enough sales to offset their costs.
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Kmart Retailer Stores Supply Chain Management Specialty Logistics Stocks
In discussing marketing strategy, it was apparent that Kmart did not have a focused strategy. Rather, it was all over the place. Wal-Mart had positioned itself as the unequivocal low-cost discounter that had superior service and superior supply-chain management, while Target became known as a mass merchandiser that didn't have everyday low prices but made up for it with bright, well-stocked stores and a dose of style. Kmart's lack of a consistent marketing strategy did little to help it fit into this new environment.
Also, the article mentioned a trend toward one-stop shopping that had blurred the distinctions among many different market segments, but did not mention whether Kmart had at that point adapted to that environment. The "Big K" or "Super K" concepts, in which Kmarts would also offer groceries, etc., did not emerge until after Wal-Mart had already eaten a good portion of Kmart's market share.
The article spoke of repositioning Kmart away from low-to-medium quality merchandise in an effort to attract more affluent customers. The reason this didn’t work, in hindsight, was because many Kmart stores are older than those of its competitors and located in less-than-attractive urban areas. Like it or not, affluent customers are averse to going into these areas. Kmart was quick to move into these areas; hindsight tells us that this "first-mover strategy" was a disadvantage, not only in the effort to gain affluent customers, but also making it hard for trucks to deliver merchandise efficiently, which makes it difficult to achieve economies of scale.
Published in the preeminent journal of Marketing Science, Forethought reveals the power in modelling the rational and implicit emotions driving choice, to build effective communications and lead the turnaround of one of Australia’s household brands.
Forethought congratulates colleagues for their great work driving the business transformation of Kmart. Alongside success at the MSI Practice Prize, this work has now been featured in the November edition of the A-Grade, Marketing Science journal.
The paper, which addresses the repositioning of Kmart Australia in 2011, shows how by modelling emotional as well as cognitive drivers and estimating their impact on purchase intentions, Kmart was able to focus its communications, improving market share.
Kmart’s rapid turnaround was achieved via insight-driven creative, which leveraged the quantitatively verified drivers of market share in the category, demonstrating the power of data and analytics insight to the creative fraternity. The paper’s key contributions include:
• The incorporation of marketing science models of evaluation and purchase intentions
• A new methodology for emotions measurement
• And ultimately, an approach enabling marketing science to collaborate in the design of creative output, rather than mere testing of pre-existing content, thus optimizing advertising effectiveness at conception.
The Practice Prize Paper, titled Incorporating Emotions into Evaluation and Choice Models: Application to Kmart Australia, can be read in the November edition of the A-Grade, Marketing Science journal. For more information on this paper, please visit: http://www.forethought.com.au/Think-Tank/Papers/White-Papers/incorporating-emotions-into-evaluation-and-choice-models
This content was originally published by Forethought . Visit their website at www.forethought.com.au.