Kmart tests concepts in out-of-way corners
As sales and profits sag, parent firm Sears Holdings is trying, in the quietest of ways, new layouts and ideas at two Rockford stores
ROCKFORD — For a glimpse into Kmart's possible future, take a drive down the main drag in Rockford's business district.Beyond Wal-Mart and past Target, the two competitors that long ago stole Kmart's thunder, a Big K store sits alone at the back of a vast parking lot facing an Old Time Pottery, a shuttered Value City Furniture store and an abandoned gas station.
It is here at this Big K, as many Kmarts are known, that parent Sears Holdings Corp. is experimenting with a new format aimed at turning around the brand, where sales and profits are declining at an accelerating rate.
The test store, one of two in this northern Illinois industrial town, has been operating in relative obscurity since November. Kmart has done little advertising to attract new customers to the store. There is also nothing on the outside to signal passers-by to stop in and look at the remodeled interior.
It's an unusually cautious approach by retail standards, but investors have long puzzled over Sears Chairman Edward Lampert's strategy. While he positions himself as a retailer, he doesn't operate in a conventional fashion, leading many to conclude he is more interested in his company's real estate value than its future as a retailer.
Lampert, a billionaire and Sears' controlling stakeholder, has explained it this way: He doesn't want to invest money in fixing up stores unless he is sure he will get a return on his investment.
And so far, it seems, Kmart has yet to decide whether it's time for a complete makeover.
"The worst thing you can do is send people into the stores when you're not ready," Maureen McGuire, executive vice president and chief marketing officer for Sears Holdings said in an interview at the company's Hoffman Estates headquarters. "It's like inviting someone into your home and it's like you never expected them. So we want to be prepared for our customers when they come in.
"From the outside, the gray single-story structure looks little changed from polyester palaces Kmart built in the 1960s and 1970s that transformed five-and-dime variety store S.S. Kresge Co. into one of the retail powerhouses of that era. But step inside the store and it's a different story.
"It looked really nice," said Enola Troxell, a frequent shopper at a Kmart in nearby Freeport who visited the Rockford store for the first time this month. "It looks cleaner and bigger and like they carry more stuff."Troxell was looking for women's safety work shoes. She didn't find them and left empty-handed.
A Kmart circular ad for a television at a bargain price brought Lotta Russey into the store, but she too left without making a purchase."The outside of the store looks dreary," said Russey. "It doesn't draw you in. It says cheap. You need to get people inside by what's on the outside.
"Crushed by Wal-Mart on price and Target in design, Kmart has struggled for decades to find its niche. A trip through Chapter 11 bankruptcy in 2002 wiped out a lot of debt but also led the retailer to close hundreds of stores and sell some of its best locations.
The slimmed-down chain bought Sears, Roebuck and Co. in 2005 with ambitions of turning Kmart stores, which are located primarily in strip centers, into Sears, which are located primarily in malls. Consumers were driving past the malls to the more convenient big-box stores such as Best Buy and Target, a shopping pattern shift that Sears needed to address.
The experiment didn't work. Many of the converted stores, called Sears Essentials or Sears Grand, looked like a Sears stuffed into an old Kmart shell. There was little overlap between Kmart and Sears shoppers. The plan was suspended last year and Sears is "exploring its options," McGuire said.
With 1,382 Kmart stores, down from 1,416 at the time of the merger, the diminished but still sizable discount chain is faced with finding a way to generate enough sales in its existing stores to justify the cost of keeping them open.
"The problem is you're dealing with a very beat-up, old store base," said Kelly Tackett, an analyst at Columbus, Ohio-based TNS Retail Forward.
Borrowing a page
In what appears to be a nod to rival Target, Kmart has reorganized its test store in Rockford to make it easier to shop: painting the perimeter walls vibrant colors, installing lower shelves so customers can see across the entire store at once, moving dressing rooms from dingy corners to the middle of the floor, putting the toy department next to children's clothing and installing price scanning stations.
At the front of the store, two flat-screen televisions run promotions describing the newly remodeled store. Off to the side, a "Just Ask" help station set up to resemble a row of bank tellers is ready to recommend a handyman, book a delivery service, find a part or set up a baby or bridal gift registry.
So far, shoppers seem to be overlooking the TV screens, and the response to the service desk has been mixed, McGuire said. On the other hand the lower shelf heights have fared well and Kmart has rolled them out to 100 stores.
Making room in middle
Perhaps the most risky experiment is in the middle of the store where Kmart cleared space for a "marketplace" filled with constantly changing seasonal goods, such as beach towels and flip-flops for under $10. The merchandise is displayed on wheeled carts reminiscent of a farm stand with plenty of room for shoppers to stroll about.
The roomy displays look inviting, but they also take up valuable floor space that could be packed with more goods and increase sales per square foot, a measure of a retailer's productivity.
"Customers liked that place of discovery, that open area, so we're thinking about how do you take that to the average store, this place of discovery, while still balancing productivity," said Don Germano, senior vice president and general manager of Kmart stores.
Kmart already lags its peers on that score.The average sales per square foot at a Big K was $116 last year, compared with $308 at Target and $443 at Wal-Mart and $137 at Sears, according to Cambridge, Mass.-based retail research firm Management Ventures. Target and Wal-Mart figures exclude stores that sell groceries, which bring down average sales per square foot to $258 at Super Target and $425 at Wal-Mart Supercenters. Big K stores don't include groceries and make up 1,327 of Kmart's 1,382 stores.
Most of Kmart's sales volume is generated at roughly the top 300 to 400 stores, or 20 percent to 30 percent of its base, estimated Anne Zybowski, director of retail insight at Management Ventures."
A lot of the most profitable stores are ones where there isn't a Wal-Mart nearby," said Zybowski. "They're urban locations where people walk to the stores."Sears doesn't disclose sales per square foot, and Germano and McGuire declined to comment on analysts' estimates.
Lift was temporary
Initially, Kmart had provided some hope for Sears. Sales at stores open at least one year, a closely watched metric of a retailer's health, stabilized in fiscal 2006, declining a negligible 0.6 percent, while Sears' same-store sales fell 6.1 percent. That trend reversed last year when same-store sales fell 4.7 percent at Kmart and 4.0 percent at Sears. In the first quarter ended May 3, 2008, sales at both divisions plummeted dramatically, declining 7.1 percent at Kmart and 9.8 percent at Sears.Perhaps more troubling, according to Credit Suisse analyst Gary Batler, is that Kmart's same-store sales have declined even as Sears rolled out Craftsman tools and DieHard batteries at Kmart stores nationwide and introduced Kenmore appliances to about 280 Kmart stores.
"If one wants to get to the root of the problems at Sears Holdings, it is Kmart," wrote Credit Suisse analyst Gary Balter earlier this year in a report.
Sears officials declined to comment on sales of Sears products in Kmart stores.But McGuire and Germano are quick to point out that they are only little more than a year into a five-year plan to fix Kmart.
The first step was to improve the apparel offerings, high-margin goods that can boost overall profits. And clothing in the children's and juniors departments, which include new in-house brands Piper & Blue and Wckd, are well-made, stylish and often 100 percent cotton.Bill Stewart, the outgoing chief marketing officer of Kmart, boasts that last year Kmart held a blind casting call for women in New York and Los Angeles to be in a national ad campaign.
The women were put in a big room with Kmart clothing, belts, bags and accessories and told to put together an outfit without knowing the retailer was Kmart. When the women were asked where they think the clothing came from, they named retailers including H&M, Banana Republic, Macy's and Forever 21. The promotion ran from March through May and the TV ads aired in April.
"I think we really changed a lot of perceptions," said Stewart, who is leaving Kmart at the end of the month after two years to work for the campaign to promote gay marriage in California.
Several tests aheadKmart's next challenge will be to keep its home goods business, a key component of its stores, in good stead even if its longstanding contract with Martha Stewart ends in 2010. Kmart is developing new brand names for the home. And Martha Stewart already has a deal in place with Macy's.Kmart makes up a smaller piece of the company than Sears, but its profits are declining faster. Kmart generated $17.3 billion of revenue in fiscal 2007, while Sears' U.S. stores rang up $27.9 billion. Operating income for the same period fell 58 percent to $402 million at Kmart and dropped 41 percent to $784 million at Sears.
For now, Kmart has an initiative under way to clean up the stores, Germano said.On the outskirts of Rockford, a second Kmart test store sits across from a trailer park, sharing a parking lot with a thrift shop and shuttered auto center.
This remodeled store is already starting to show signs of neglect. The new, blue "Healthy Living" sign hanging over the pharmacy area is missing three letters.
"You have to get some things right before you get to the next level," said McGuire. "Uncluttering the stores, making sure the carpets are clean, as much as you can possibly do. So that's the first thing. We have to get that absolutely right."
Source: Chicago Tribune
ROCKFORD — For a glimpse into Kmart's possible future, take a drive down the main drag in Rockford's business district.Beyond Wal-Mart and past Target, the two competitors that long ago stole Kmart's thunder, a Big K store sits alone at the back of a vast parking lot facing an Old Time Pottery, a shuttered Value City Furniture store and an abandoned gas station.
It is here at this Big K, as many Kmarts are known, that parent Sears Holdings Corp. is experimenting with a new format aimed at turning around the brand, where sales and profits are declining at an accelerating rate.
The test store, one of two in this northern Illinois industrial town, has been operating in relative obscurity since November. Kmart has done little advertising to attract new customers to the store. There is also nothing on the outside to signal passers-by to stop in and look at the remodeled interior.
It's an unusually cautious approach by retail standards, but investors have long puzzled over Sears Chairman Edward Lampert's strategy. While he positions himself as a retailer, he doesn't operate in a conventional fashion, leading many to conclude he is more interested in his company's real estate value than its future as a retailer.
Lampert, a billionaire and Sears' controlling stakeholder, has explained it this way: He doesn't want to invest money in fixing up stores unless he is sure he will get a return on his investment.
And so far, it seems, Kmart has yet to decide whether it's time for a complete makeover.
"The worst thing you can do is send people into the stores when you're not ready," Maureen McGuire, executive vice president and chief marketing officer for Sears Holdings said in an interview at the company's Hoffman Estates headquarters. "It's like inviting someone into your home and it's like you never expected them. So we want to be prepared for our customers when they come in.
"From the outside, the gray single-story structure looks little changed from polyester palaces Kmart built in the 1960s and 1970s that transformed five-and-dime variety store S.S. Kresge Co. into one of the retail powerhouses of that era. But step inside the store and it's a different story.
"It looked really nice," said Enola Troxell, a frequent shopper at a Kmart in nearby Freeport who visited the Rockford store for the first time this month. "It looks cleaner and bigger and like they carry more stuff."Troxell was looking for women's safety work shoes. She didn't find them and left empty-handed.
A Kmart circular ad for a television at a bargain price brought Lotta Russey into the store, but she too left without making a purchase."The outside of the store looks dreary," said Russey. "It doesn't draw you in. It says cheap. You need to get people inside by what's on the outside.
"Crushed by Wal-Mart on price and Target in design, Kmart has struggled for decades to find its niche. A trip through Chapter 11 bankruptcy in 2002 wiped out a lot of debt but also led the retailer to close hundreds of stores and sell some of its best locations.
The slimmed-down chain bought Sears, Roebuck and Co. in 2005 with ambitions of turning Kmart stores, which are located primarily in strip centers, into Sears, which are located primarily in malls. Consumers were driving past the malls to the more convenient big-box stores such as Best Buy and Target, a shopping pattern shift that Sears needed to address.
The experiment didn't work. Many of the converted stores, called Sears Essentials or Sears Grand, looked like a Sears stuffed into an old Kmart shell. There was little overlap between Kmart and Sears shoppers. The plan was suspended last year and Sears is "exploring its options," McGuire said.
With 1,382 Kmart stores, down from 1,416 at the time of the merger, the diminished but still sizable discount chain is faced with finding a way to generate enough sales in its existing stores to justify the cost of keeping them open.
"The problem is you're dealing with a very beat-up, old store base," said Kelly Tackett, an analyst at Columbus, Ohio-based TNS Retail Forward.
Borrowing a page
In what appears to be a nod to rival Target, Kmart has reorganized its test store in Rockford to make it easier to shop: painting the perimeter walls vibrant colors, installing lower shelves so customers can see across the entire store at once, moving dressing rooms from dingy corners to the middle of the floor, putting the toy department next to children's clothing and installing price scanning stations.
At the front of the store, two flat-screen televisions run promotions describing the newly remodeled store. Off to the side, a "Just Ask" help station set up to resemble a row of bank tellers is ready to recommend a handyman, book a delivery service, find a part or set up a baby or bridal gift registry.
So far, shoppers seem to be overlooking the TV screens, and the response to the service desk has been mixed, McGuire said. On the other hand the lower shelf heights have fared well and Kmart has rolled them out to 100 stores.
Making room in middle
Perhaps the most risky experiment is in the middle of the store where Kmart cleared space for a "marketplace" filled with constantly changing seasonal goods, such as beach towels and flip-flops for under $10. The merchandise is displayed on wheeled carts reminiscent of a farm stand with plenty of room for shoppers to stroll about.
The roomy displays look inviting, but they also take up valuable floor space that could be packed with more goods and increase sales per square foot, a measure of a retailer's productivity.
"Customers liked that place of discovery, that open area, so we're thinking about how do you take that to the average store, this place of discovery, while still balancing productivity," said Don Germano, senior vice president and general manager of Kmart stores.
Kmart already lags its peers on that score.The average sales per square foot at a Big K was $116 last year, compared with $308 at Target and $443 at Wal-Mart and $137 at Sears, according to Cambridge, Mass.-based retail research firm Management Ventures. Target and Wal-Mart figures exclude stores that sell groceries, which bring down average sales per square foot to $258 at Super Target and $425 at Wal-Mart Supercenters. Big K stores don't include groceries and make up 1,327 of Kmart's 1,382 stores.
Most of Kmart's sales volume is generated at roughly the top 300 to 400 stores, or 20 percent to 30 percent of its base, estimated Anne Zybowski, director of retail insight at Management Ventures."
A lot of the most profitable stores are ones where there isn't a Wal-Mart nearby," said Zybowski. "They're urban locations where people walk to the stores."Sears doesn't disclose sales per square foot, and Germano and McGuire declined to comment on analysts' estimates.
Lift was temporary
Initially, Kmart had provided some hope for Sears. Sales at stores open at least one year, a closely watched metric of a retailer's health, stabilized in fiscal 2006, declining a negligible 0.6 percent, while Sears' same-store sales fell 6.1 percent. That trend reversed last year when same-store sales fell 4.7 percent at Kmart and 4.0 percent at Sears. In the first quarter ended May 3, 2008, sales at both divisions plummeted dramatically, declining 7.1 percent at Kmart and 9.8 percent at Sears.Perhaps more troubling, according to Credit Suisse analyst Gary Batler, is that Kmart's same-store sales have declined even as Sears rolled out Craftsman tools and DieHard batteries at Kmart stores nationwide and introduced Kenmore appliances to about 280 Kmart stores.
"If one wants to get to the root of the problems at Sears Holdings, it is Kmart," wrote Credit Suisse analyst Gary Balter earlier this year in a report.
Sears officials declined to comment on sales of Sears products in Kmart stores.But McGuire and Germano are quick to point out that they are only little more than a year into a five-year plan to fix Kmart.
The first step was to improve the apparel offerings, high-margin goods that can boost overall profits. And clothing in the children's and juniors departments, which include new in-house brands Piper & Blue and Wckd, are well-made, stylish and often 100 percent cotton.Bill Stewart, the outgoing chief marketing officer of Kmart, boasts that last year Kmart held a blind casting call for women in New York and Los Angeles to be in a national ad campaign.
The women were put in a big room with Kmart clothing, belts, bags and accessories and told to put together an outfit without knowing the retailer was Kmart. When the women were asked where they think the clothing came from, they named retailers including H&M, Banana Republic, Macy's and Forever 21. The promotion ran from March through May and the TV ads aired in April.
"I think we really changed a lot of perceptions," said Stewart, who is leaving Kmart at the end of the month after two years to work for the campaign to promote gay marriage in California.
Several tests aheadKmart's next challenge will be to keep its home goods business, a key component of its stores, in good stead even if its longstanding contract with Martha Stewart ends in 2010. Kmart is developing new brand names for the home. And Martha Stewart already has a deal in place with Macy's.Kmart makes up a smaller piece of the company than Sears, but its profits are declining faster. Kmart generated $17.3 billion of revenue in fiscal 2007, while Sears' U.S. stores rang up $27.9 billion. Operating income for the same period fell 58 percent to $402 million at Kmart and dropped 41 percent to $784 million at Sears.
For now, Kmart has an initiative under way to clean up the stores, Germano said.On the outskirts of Rockford, a second Kmart test store sits across from a trailer park, sharing a parking lot with a thrift shop and shuttered auto center.
This remodeled store is already starting to show signs of neglect. The new, blue "Healthy Living" sign hanging over the pharmacy area is missing three letters.
"You have to get some things right before you get to the next level," said McGuire. "Uncluttering the stores, making sure the carpets are clean, as much as you can possibly do. So that's the first thing. We have to get that absolutely right."
Source: Chicago Tribune
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