Kmart

1. Evaluate the strategies that Kmart has introduced as part of its marketing program to emerge out of bankruptcy in 2002. How much impact would this restructuring have in the competitive environment as the firm seeks to identify a niche in the marketplace and grow in the future?

The major objective of Kmart management in 2002 was to emerge from the protection of the Chapter 11 bankruptcy as a strong and healthy competitor with a clearly defined place or niche in the discount retail sector of the market in 2003. The financial results reconfirm the significant difficulties Kmart experienced in fiscal 2001, including unsuccessful sales and marketing initiatives, erosion in supplier confidence, and below-plan sales and earning performance for the fiscal year 2001. All of these were factors in the company's decision to file for bankruptcy protection.

The bankruptcy filing had the immediate effect of reassuring suppliers that they would be paid. Early restructuring efforts included closing underperforming stores and canceling the leases for previously closed stores resulting in "annual savings of hundreds of millions of dollars." A new management team of seasoned executives with considerable turnaround and retail experience was installed. Arrangements were made with a credit facility to provide additional liquidity.

Kmart management announced early that it would work on a new marketing strategy that would focus on family values. A key component of this strategy was to invest in merchandise and marketing initiatives to enhance the firm's strategic positioning by offering a number of strong exclusive brands that would differentiate it from competition. Several changes were made in pricing strategy to avoid direct competition and others in the market. A store in White Lake, Michigan, would serve as a prototype to test new ideas while management decided on a final strategy for the entire company. The experiments concerning a shift from central to decentralized control of store operations were introduced to give managers more freedom to customize inventory, store hours, and displays based on customer preferences.

A corporate strategy can be defined as a decisive alloca¬tion of resources to a major course of action. It can be a long-run, time-phased plan to achieve at a high rate of return of investment a market position so advantageous that competition can retaliate only over an extended time interval and at a prohibition cost. What Kmart needed was something more dramatic and major that would differentiate the firm from Wal-Mart, Target and other strong competitors in the retail marketplace.

Kmart's ongoing financial losses, combined with its failure to sustain any kind of sales momentum, had many retail experts speculating on whether the company can successfully emerge from bankruptcy. Most the early decisions concerning restructuring the company were considered tactical in nature and did not reveal a new strategic plan of action.

2. How much importance is placed on the planning function at Kmart?

What are some constraints that are likely to decrease its effect on the development of the organization? Kmart had a reasonably formal planning organization. It involved a constant evaluation of what was happening in the marketplace, what competition was doing, and what kinds of opportunities were available. The organization provided for a Director of Planning and Research who reported directly to the Chief Executive Officer. A planning group made up of individuals representing a number of functional areas of the organization aided and assisted the Director of Planning and Research. As noted in the case, management recognized the need to emphasize planning, since it as a group was not going to grow with the Kmart format forever.

In retailing, most change is tactical in nature. Revisions are made in marketing practice to gain short-run advantages. There are several constraints that hinder "innovative competition" as part of the planning process: (1) traditional trade practices, (2) limited goals and expectations, (3) deeply entrenched patterns of behavior within the firm, (4) the pressures of other firms within the channel of distribution to maintain the status quo, and (5) efforts to cultivate an identified market segment to the neglect of others.

3. Why do you think planning is important to an organization like Kmart?

It is generally agreed that planning involves such activities as: (1) developing the objectives and goals for a company, (2) projecting economic conditions that will affect the firm's future, (3) formulating alternative courses of action to reach identified goals, (4) analyzing the consequences of identified alternatives, (5) deciding which strategies are most feasible in light of limited corporate resources, and (6) devising methods for measuring progress toward a planned goal when a program has been chosen.

Kmart had developed a corporate culture that was accustomed to challenges. Management was obligated to find ways to expand that energy. With the discount department store industry at maturity, management would have to recognize that it would have to decide where it wants to go and how it is going to get there. It had to make major commitments today to continue its high-yield performance mandate in the future.

4. How does planning fit into the management process at Kmart?

The Chairman of the Board, as Chief Executive Officer (CEO), is the primary planner of the organization. Management had recognized that the Director of Planning and Research and his "group" are only advisory in nature and in a staff position. They function much the same as an in-house consulting group.

Recognition of the need for planning is a key phrase here. Management felt that corporate planning at Kmart was the result of executives, primarily the senior executive, recognizing change and getting others to recognize that nothing is good forever. Good planning, it was noted, is making decisions now to improve performance tomorrow.

5. Discuss the importance of changes in the external environment.

How much