Professional Documents
Culture Documents
Kmart
Marie Janz & Kris Ruth
Introduction
Historical Overview
In 1987 Sebastian S. Kresge, the founder of Kmart opened his first five-and-
dime store. In 1962 Kresge had opened the first Kmart discount department,
followed by 17 other Kmart stores that same year. (4)
In 1966, Kresge died, leaving 735 Kresge variety stores and 162 Kmart
stores with combined annual sales greater than $1 billion. Management
replaced all Kresge stores with Kmarts and continued to build more Kmarts.
(4)
In 1977 Kmart Corporation was established with 95% of sales coming from
Kmart department stores. In 1981, the 2,000th Kmart was opened.(4) (For
other significant historical facts see Appendix 1.)
Beginning with Antonini’s stay as CEO, president, & Chairman of the Board
and continuing into this year, Kmart has been divesting these businesses.
This divestiture strategy has left Kmart with only % shares of the shoe store
that currently stocks their shoes (Kmart does not own the shoes it sells).
Kmart after several years of negative income have chosen to concentrate on
their core business.
Their markets exist in the United States, Guam, Puerto Rico, and the Virgin
Islands. Kmart has pulled out of their Canadian, Mexican, Czech and Slavic
markets.(1)
Kmart’s main product lines include: Martha Stewart Everyday, Jaclyn Smith
women’s apparel, Kathy Ireland’s women apparel, Kgro horticultural
products, Sesame Street, Penske Automotive, Route 66, Bench Top and
American Fare.(2) They also carry market dominant brands such as General
Electric, Huffy, Sara Lee, Rubbermaid, Procter & Gamble, Fruit of the Loom,
Nabisco, Hallmark, Gillette, etc. (2) In the Big Kmarts they have also set up
on-line service terminals, "Kmart Solutions", that allow for orders to placed;
items include flowers, toys, Whirlpool appliances and Western Union
services. (1)
Kmart’s product lines also include on-line shopping. Not only can you
purchase items at their web-site; but they have just expanded their presence
on the Internet with the launching of www.musicfavorites.com.(1)
Company Analysis
The retail industry compares the leading companies in terms of sales per
square foot, comparable sales growth, EBIT (Earnings Before Income Tax)
Margin, Total Selling Square Feet, Total Stores and EPS. (2)
SWOT
Kmart’s internal strengths include their current CEO Floyd Hall and their
current Restructuring plan. Floyd Hall has demonstrated himself to be of
great value to Kmart. He saved them from near bankruptcy in January 1996.
He negotiated with leaseholders, vendors and creditors not to force them
into bankruptcy in spite of the junk bond rating they had received.
Industry Analysis
This segment of the retail industry grossed $253 billion in sales in 1997.
Kmart currently ranks second in this segment with 12.7% of the market,
which is $32,183 million of sales for 1997. The leading competitor in the
industry is Wal-Mart (who is currently "America’s largest revenue measured
by total revenues" (1)) with 46.6% share of the market and $117,958 million
in sales, which is 3.67 times larger than Kmart’s sales. Dayton Hudson Corp
(who owns Target and Mervynn’s) ranks third with 10.9% market share and
$27,757 in sales for 1997. (5)
Because in the recent past both GDP and disposable income have been
increasing, the retail industry has enjoyed positive growth. However, in the
first and second quarter of 1998 the economy has slowed causing sales to
slump. GDP is also directly related to retail spending. Consumer spending is
approximately two-thirds of GDP. The recent slow down in GDP can be
related to the economic turmoil in Asia and Russia. This has dampened the
export market and put a drag on the American economy.
Other general economic conditions affecting the retail industry include, for
all segments include consumer confidence, changes in consumer’s demand
and shopping preferences. The current trends in the retail industry indicate
that consumers perceive shopping as a chore, it is no longer "fun" as in the
1980’s. Consumers are shopping more at general merchandise stores,
because they can eliminate trips. The Big Kmarts & Super Kmarts both will
help minimize trips for the consumer. Because consumers perceive shopping
as a chore, if retailers want to get them in the door, then they need to focus
on making shopping more "entertaining". (7)
The power of the suppliers is strong. Retailers must maintain good relations
with their vendors. If their reputation is soiled with the suppliers, then they
risk losing their source of merchandise and will be driven out of business.
The power of the buyers is also strong. Retailers are at the mercy of the
consumer’s demand and preferences. Currently consumers find shopping to
be a chore. The convenience of the general merchandise store allows
customers, to buy more items in fewer trips. The trick is getting them to
come to your store—a pleasant and entertaining atmosphere is the push
today.
The power of new market entrants is weak. The market is extremely easy to
enter into, but it is hard to compete at the levels of economies of scale that
the larger chains possess.
The power of substitutes is very strong. This force includes the specialized
discount stores, the "category killers", these stores are able to undercut the
prices of their items and simultaneously provide a wider variety of
merchandise for their category.
Performance Analysis
Financial Trends
Kmart’s five-year sales figures are relatively flat. Sales for years 1993-1997
all came in about the $30 billion range. Compared to the continual growth
that Wal-Mart is experiencing, Kmart isn’t even a threat.
Net Income for Kmart has been minimal. In 1993 and 1995 the figures were
negative. The other years were below $300 million, compared to Wal-Mart
and Kmart’s own sales figures, this amount is negligible. EPS growth trends
for both Kmart and Wal-Mart parallel that of their Net Income.
Kmart’s overall Sales, Net Income and EPS growth over the last five years is
not very good. The poor figures for 1993-the first half of 1995 is the reason
Mr. Antonini resigned as CEO. By January 1996, Kmart was under the verge
of bankruptcy, which is not surprising given the figures. However, for 1997
and 1998, we see an obvious improvement from the efforts of CEO Floyd
Hall. His negotiating skills are what saved Kmart from bankruptcy.
Ratio Analysis
Kmart’s productivity ratios, ROE and ROA, are negligible compared to Wal-
Mart. For years 1993 and 1995, these figures were not measurable.
Kmart’s liquidity ratios, current ratio and quick ratio, are greater than Wal-
Marts. However, Kmart’s current ratios are sporadic. Wal-Mart’s ratios are
nice and even, indicating that they have a better handle on their cash flows.
Recommendations to Corporation
For Kmart we recommend that they establish a sinking fund for retail
technological advancements. Thus allocating funds on an annual basis, that
will allow them to purchase retail technology as soon as becomes available.
This will allow them to compete with Wal-Mart, who works with technological
research companies to test the technology. This allows Wal-Mart to be the
first in the industry with the new technology if it is feasible. Establishing a
sinking fund will cut down the lag time for Kmart to also have the
technology.
The current P/E ratio indicates a hold position for the stock for the long-term
investor who is risk tolerant, given Kmart’s past performance.
Bibliography
1. Stockmaster, www.stockmaster.com.
2. Kmart, www.kmart.com.
3. Wal-Mart, www.wal-mart.com.
Historical Overview
Missouri
1950’s Suburban Shopping Centers & full-line discount stores are growing
1966 Kresge died; leaving 735 Kresge variety stores & 162 Kmart stores
Management replaced Kresge stores with Kmarts, and built more Kmart
stores.
History of Diversification
1984.
1. Builders Square (warehouse-style home centers)
1984.
1. Walden Book Company (Waldenbooks in 50 states)
2. Payless Drug Stores
1988.
1. American Faire Hypermarts (household/apparel/supermarkets)
1988.
1. Pace Membership warehouse clubs
1988.
1. Office Square (warehouse-style office supply)
2. Opened Sports Giant stores
3. Sports Authority (10-store chain) acquired and integrated with
Sports Giant
4. Purchased 22% interest in Office Max, which rose to 90% by
1991
5. Borders, Inc. (22 book superstores Midwest & Northeast)
6. 1992 13 discount store chain in Czech Republic &Slovakia
1992 Bizmart (105 office supply stores)