Business / Kmart:Striving For A Comeback Case Study

Kmart:Striving For A Comeback Case Study

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Autor:  anton  09 April 2011
Tags:  Kmartstriving,  Comeback
Words: 1616   |   Pages: 7
Views: 1276

KMART: STRIVING FOR A COMEBACK

COMPANY:

Kmart Corporation is facing a serious problem with regards to the problem of bankruptcy protection that had allowed it to continue its operation even though it had been delinquent on obligations of more than $4.7 billion owed to creditors, vendors and leaseholders. The bankruptcy< which was filed in January 2002 was the largest bankruptcy in U.S. retailing history and was the culmination of decades of poor strategy execution that resulted in an overall deterioration of Kmart’s competitive position in the discount retail industry and a roller-coaster earning history.

Strengths and Weaknesses:

A. Employees

The concern of the company with regards to the attitude and performance of Kmart store managers and associates were adversely impacting shopper visits and loyalty. Hall brought all Kmart store managers meeting. The executive team made it clear that they intended to end Kmart’s historically insular, turf-wary organizational culture and adopt a more team – oriented atmosphere at both corporate headquarters and in the stores. The company announced its new management development program to help the company develop future store-level and corporate level – managers from within its ranks.

The company is criticized for lack of concern in promoting sound management to ensure productivity and efficiency in the process.

B. Customer

It is sad to note that Kmart is unresponsive to customer service. A 1994 Forbes article cited customer complaints of indifferent Kmart employees who, when asked for a specific item in the store, would wave their hand in a general direction. One disgruntled shopper complained “At the superstores in Farmington Hills or Southfield, the help is surly and uncooperative and they can never find the product that they need and have to have.

Floyd Hall and his new management team developed a combination of new strategies and improved implementation techniques to better compete with low-cost leader Wal-Mart and rapidly growing target. It is with this respect hat there is a need to take into consideration about the impact of these strategies in order to ensure customer satisfaction since the employees are the lifeblood of the business. It is important to deal with their problems through assessing their preferences and choices. It is important for the company to be customer – oriented rather than competitor oriented.

C. Product Service

The management needed to correct its long-running inability to maintain proper inventory levels in its store. Kmart had been confronted with this problem for years. Most Kmart stores either frequently stocked out of popular items and/or were burdened with excess stocks of slow-moving items that eventually had to be marked down significantly. It is believed that Kmart’s decentralized buying and merchandising process was the root of the company’s poor inventory management practices. Kmart buyer’s negotiated purchases with manufacturer’s distribution people shipped products to stores, advertising specialists coordinated the company’s advertising and a separate marketing staff was responsible for promotions. Surveys of U.S. discount store shoppers commissioned by Chain Store Age Executive found three consistent negative images that customers attributed to Kmart: out-of-stock merchandise, poor housekeeping and indifferent service. Consumers surveyed around Wal-Mart locations more convenient and believed that Wal-Mart offered better pricing and product selection than Kmart.

D. Financial Capacities

The company is delinquent of more than $4.7 billion owned to creditors, vendors and leaseholders. The bankruptcy, which was filed in January 2002 was the largest bankruptcy in U.S. retailing history and was the culmination of decades of poor strategy execution that resulted in an overall deterioration of Kmart’s competitive position in the discount retail industry and a roller coaster earni8ng history.

Specific problems that contributed to Kmart’s bankruptcy were poor supply6 chain management, poor customer, service, frequent stock outs of popular items, excessive inventory of slow-selling items, poor store housekeeping, unsound pricing strategies and too many deteriorating stores built in the 1960s and 1970s to make matters worse. The company needs to improve its financial performance to ensure productivity and efficiency in the process.

E. Competitor

The major competitor of Kmart is Wal-Mart. Wal-Mart in particular was leaving Kmart far behind. Kmart’s sales per store continued to run near $180 per square foot in 1994, despite the merchandising efforts initiated by Antonini and other Kmart executives. Kmart’s pricing continued to average 10 to 15 per cent above its chief competitors as Kmart sought to boost its sub par store margin and make up for the higher selling, general and administrative expenses brought on by relatively low sales volume per square foot of selling space. There is a need for the management to come up with unique marketing strategies to ensure growth and profitability in the process.

F. Suppliers

The company needs to reposition and restructure in order to improve inventory management through ensuring proper supplies and not too many supplies of the not popular and not in demand products because it would result to further financial losses of the company. Supplies should be focused on the in demand product lines.

PROBLEM:

The problems that contributed to Kmart’s bankruptcy were poor supply chain management, poor customer service, frequent stock outs of popular items, excessive inventory of slow-selling items, poor tore housekeeping, unsound pricing strategies and too many deteriorating stores built in the 1960s and 1970s.

ALTERNATIVES:

The following alternative courses of action should be taken into consideration to resolve the problem:

1. There is a need to improve the system through keeping abreast with the fast pace of technology through modern devices in the proper inventory of the product lines to replenish products that are in demand and to get rid of stocks that are slow.

2. Improve customer service through assessing the preferences and choices of the customers toward growth and profitability.

3. There is a need to come up with policies with regards to pricing strategies since pricing could spell success or disaster for the business.

RECOMMENDATION:

From the different options presented, I have preference for alternative courses #1 and 3 as the best alternative courses of action that would likely resolve the problem.

IMPLEMENTATION:

In the implementation of the different alternative strategies, it is important to take into consideration the different strategies focusing on the product, customers and as well as the proper inventory system to ensure growth and profitability to prevent the recession of the business and thus ending in the closure of the company.

METHOD OF ANALYSIS:

A) COMPARATIVE PERFORMANCE

On the basis of the consolidated statement of operations for Kmart Corporation for the fiscal year 200-2003 in terms of dollar in millions, it revealed that there is a tremendous decrease in the growth of the company considering it has a sales of $36,151 in 2002 and in 2003 the sales is $30,762. The decrease in sales is indicative that the company is not doing well considering the problem of bankruptcy. It is important for the management to deal with the problem in order to ensure growth and profitability to prevent the closure of the company who has been in the business for a number of years. It is important to take into consideration the need for the improvement of its performance through infusing strategies to improve customer satisfaction, improve inventory system and as well as handle its finances well because finances could spell success or disaster for the business.

b) SWOT ANALYSIS

Strengths

- New store concepts that included a wider variety of household items and apparel than what was found in five and dimes.

- Kmart management diversified the company into additional retailing businesses rather than rely on new Kmart’s store openings to generate revenue growth

- Kresge management continued to increase the number of Kmart stores and replaced existing Kresge Company opened 271 stores and thus became the only retailer to ever open 17 million square.

- Kmart’s strategy of growth via diversification into a variety of retail businesses was initiated by Bernard Famber, the company chief-executive officer.

Weaknesses

- Delinquent on obligations of more than $4.7 billion owed to creditors, vendors and leaseholders. Specific problems that contributed to Kmart’s bankruptcy were poor supply chain management, poor customer service, frequent stock outs of popular items, excessive inventory of slow-selling items and store housekeeping, unsound pricing strategies and too many deteriorating stores built in the 1960s.

Opportunities

There are several opportunities for the company if it is able to handle its financial problems considering the company has been in the business for a number of years. Its success could be attributed to infusing new ideas and strategies for the good of the company.

Threats

If bankruptcy would not be resolved, there is a threat that the company would close and that would be the end of the company and its employees.

Appendices A

Consolidated Statement of Operations for Kmart Corporation, Fiscal 2000-2003 (dollars in millions, except per share data)

2003 2002

Sales $30,762 $36,151

Cost of sales, buying and occupancy 26,258 29,853

Gross margin 4,504 6,298

Selling, general and administrative expenses 6,544 7,588

Equity (Loss) income in unconsolidated subsidiaries 34 -

Restructuring, impairment and other charges 739 1,091

Appendix B

SWOT

Alternatives Strengths Weaknesses Threats Opportunities

1 Improvement of the system could be a competitive advantage because it ensures productivity and efficiency It is criticized for its poor inventory management system and poor supplies chain management The company is threatened by the financial losses and in its inability to remain liquid, solvent and profitable Opportunity for the company is big if it is able to deal with its finances and as well as its product lines.

2 The customers are the lifeblood of the business there is a need to improve its customer service Customer service are poor If customer service is not properly handled, then further losses would mean closure of the company There is a need to assess consumer preferences and choices in order to ensure customer satisfaction

3 Pricing should be low in cost but quality service Poor pricing strategies It is threatened by the problem of its competitor’s strategy which gains competitive advantage Opportunity depends on its ability to remain liquid and solid in solving the problem.

siurce:company annual reports



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