Both business and popular media has focused mainly on competition and management decisions as the main reason for K-Mart’s bankruptcy. In the US market, Kmart’s largest rivalry stems from Wal-Mart and Target. Combined, these three industry leaders comprise over 75% of the US retail market. (Garbato 2005) Other firms, such as ShopKo, CostCo, Sears, and JCPenney play a minor role in the industry, but individually possess less market share or specialize in very different target areas of the market.
Each of these companies alone poses little threat when compared to the three leading retailers based on those characteristics. Wal-Mart is the leading discount retailer in the US, as well as globally (CNN, 2002), and is also the only mass-marketing retailer to appear in the top 10 of the FT Global 500. With a focus and strategy dedicated to low-cost leadership, Wal-Mart is insistent upon driving volume to maintain position and has a complete inventory turnover of 56 days strong evidence supporting this strategy.
(Howell 2004, p85) Kmart is a company that is in total financial disorder. Points from essay 1. With its filing of bankruptcy in January, 2002, the company has been hastily dropping in discount retail industry rankings. Owing creditors and leaseholders more than $4. 7 billion dollars, Kmart’s bankruptcy was the largest in retail history in the United States. As a result of the economy’s lethargic performance in the past few years, Kmart’s operating profit edge has made it drive down prices, when it needed to increase them.
(Frieswick 2005) 2. A dilemma associated with this ratio is if a company has entered bankruptcy, like Kmart. The ratio becomes skewed, making it look overly effectual. The reason for this deceptive appearance is that the company has been relieved of many of its liabilities, making the company appear to have an enormous amount of assets with limited liability. 3. Kmart’s decision to sell guns and ammunition proved not to be a wise decision. In September 2001, Kmart was ordered by the Salt Lake City federal court to pay $1.
5 million in punitive damages for selling a gun to a young man who used it to commit suicide. This incident did not contribute positively to Kmart’s image. 4. In fact, Michael Moore, a part-time movie director and activist, took several current and former Columbine students to meet with Kmart’s then CEO, Chuck Conaway. Without the meeting but because to the bad publicity, Kmart announced they would stop selling ammunition. (Bodie et al 2002)
The company has tried introducing new products, adjusting store concepts and adjusting prices without success. Kmart’s infrastructure has deteriorated. Their stores are unkempt and under-stocked, giving customers little incentive to continue shopping with them. Since March 2000, Kmart’s stock on the New York Stock Exchange (NYSE) has been suffering compared to its competitors. (Gross, B. G. , N. S. Souleles 2002, p319) Over the past two years, Kmart has struggled to maintain a solid stock price and began to suffer greatly in October 2000.
After that time, Kmart did manage to recover through the holiday season but still failed to meet the profit margins estimated by investors. After the economic downturn in September 2001, Kmart, like many other companies in all industries, suffered greatly. According to CNN Money. Com, Kmart’s bankruptcy filing is the largest of any U. S. retailer ever. When Kmart’s financial situation is compared to its largest competitor, Wal-Mart, it is interesting to note how different the two companies are in financial strength. (Berner & Weber 2004, p39-40)
Since Kmart is in the middle of restructuring from the bankruptcy, which it under went in January of 2002, its financial information is quite different than it had previously been. With all of the negative numbers that the company is facing, the most important thing is to encourage consumers to continue shopping in its stores. (Li and Sarte 2002) During this time, Kmart will need to focus on certain segments of its company that will increase its profitability and reestablish itself as a major player in the industry.
Kmart needs to avoid price wars with Target and Wal-Mart, to avoid another hit on its profitability. In the future, top executives must keep a close eye on its acquisition of debt to make sure the overall income will not be affected for a second time. (Agarwal and Liu 2003, p75-84) Kmart was establishing a niche for itself selling names such as Martha Stewart and Disney and failed to realize it. As well as the introduction of the Blue Light campaign, Kmart also employed a campaign called “Dare to Compare” which compared specific prices on a variety of items with those of Kmart’s competitors.
This campaign, however, had a negative impact when Target began claiming that Kmart deliberately misrepresented the prices of Target’s items. (Kennedy 2005, p18) Overall it is assumed in popular and business press that for years, Wal-Mart and Target have been unparalleled rivals competing in the discount retail industry. Nothing Kmart has done to date has narrowed the gap between the Kmart Corporation and its competitors. In the end, Kmart tried to compete with both Wal-Mart and Target simultaneously by competing against Target’s style and Wal-Mart’s prices.
