K-mart’s upper management is attempting to bring K-mart “upmarket” without losing the chain’s discount image. The goal is to change the store’s image from a no-frills discount store to a retailer of quality, brand-name merchandise offered in modern, attractive displays. K-mart is attempting to change with its typical customers, who are now more educated and sophisticated than earlier in the store’s history.
K-mart assembled a senior management team to evaluate the impacts that emerging social, economic and political changes in the United States would have on the future of the business. This team was called the F-Team. Once the F-Team completed it’s report, K-mart management asked for specific marketing strategies to address each scenario from the F-Team’s report. Of all items in the report, America’s changing social class and income structure is of particular importance.
The primary customer base for K-mart has been the middle class group. This group comprises about 32 percent of the population. Members of this group often buy products that are popular and trendy. They tend to be very concerned with fashion.
Middle class size is in decline due to the influences of international competition. There is increased competition between countries for the labor pool. Third world workers are willing to accept wages that are up to a third less than United States workers will accept for the same tasks. American labor premium is disappearing, causing a significant downward mobility and an associated diminution of living standards and purchasing power. The group affected is K-mart’s predominate customer base. This is cause of great concern to the upper management.
According to the case study, this scenario will place the top group in the new social structure of the United States at about 25 percent of households, while the bottom will represent close to 65 percent. The bottom (K-mart’s customers) will suffer decrease purchasing power as a result of this shift. Upper management must create a public image makeover in order to attract customers from the smaller, but more affluent upper middle class. Proper decisions by upper management will have the desired impact on imaging and positioning. This will cause K-mart to occupy a distinctive place in the target market’s mind. The goals must be carefully set in order to attract customers with higher incomes, and at the same time, not alienate those already shopping at discount stores.
2. Use of pro golfer Fuzzy Zoeller in ads to promote golf equipment
3. Co-sponsorship of a race car driven by Mario Andretti
4. In-store greeters and a toll-free customer response number.
K-mart has also been working to be identified with fashion. Everything the stores carry will be considered fashionable, chic and popular. According to the case study, the efforts towards this goal have been successful. K-mart increased sales by 7.8 percent during 1992.
The nature and extent of change will be decided by upper management and formulated in the offices of K-mart’s headquarters, where the retailer’s management team will evaluate every aspect of the company’s operations. A revival is not implausible. After all, K-mart follows in the footsteps of such chains as Sears, JCPenney, and Montgomery Ward, all of which have accomplished turnaround feats of impressive magnitude. But despite the evidence of past turnarounds by similarly beleaguered chains, the thought of K-mart making such a radical change successfully seems remote. After all, generations of customers have the image of K-mart as a cheap discount store burned into their brains. The “blue light specials” invoke images of desperate shoppers madly running into or over each other to get their special buy. That image will most easily be changed in the children of K-marts present shoppers.
K-mart’s chief attribute in the highly competitive discount store arena is convenient locations. Unfortunately, location alone may not be enough for the Troy, Michigan-based retailer that invented discount store retailing 33 years ago.
K-mart needs more; it needs a new focus and a new image, and it needs them quickly. At a similarly difficult juncture in Sears’ history, the Chicago-based retailer had more going for it than does K-mart. Sears chairman Ed Brennan hired a well-respected chief executive, Arthur Martinez, who executed a masterful turnaround program. Martinez instituted the successful “Softer Side of Sears” ad campaign; sold off Sears’ huge franchise-making but money-losing catalog operation and redirected catalog customers into the stores; emphasized credit opportunities through the company’s Sears charge; and stressed the retailer’s golden reputation with consumers in hard lines and durables, especially with its Kenmore, Die-Hard and Craftsman labels.
K-mart’s task is just as daunting, if not more so. And its list of attributes as perceived by consumers appears slimmer than Sears’ was. As a result, the chain may be forced to reinvent itself into a different kind of retailer, one outside its roots. Unlike Sears, K-mart doesn’t have a huge catalog operation to mine, nor credit customers with whom to communicate. Its hundreds of old, sub-par stores have left shoppers with a
dated image of the retailer–even though its new discount store prototype and Super K-mart Center programs are outstanding.
According to George Rosenbaum, president of Leo J. Shapiro & Associates, a Chicago-based consumer research firm, the future of K-mart could be two-pronged: one in supercenter retailing through Super K-mart Center, the other a strategy for reinventing the discount stores. The supercenter, or combo retailing has been very successful for Wal-Mart. Maybe this can work for K-mart as well.
Sales figures point to K-mart’s less-than-stellar productivity statistics: less than $150 per sq. ft. of sales compared to more than $300 per sq. ft. for Wal-Mart and $225 for Target. The reason: Wal-Mart has the price/value equation sewed up with consumers, and Target firmly holds the fashion/quality position. This makes the challenge even more daunting.
K-mart could maintain its power retailer position by rediscovering its niche in apparel, strengthening its home decor departments, growing the supercenter division and finding the right marketing and advertising message to convey its new image and identity.