Kmart - What went wrong?

Kmart's main weakness was that it had an aspiration to be all things to all people – its dabblings in drug stores, home improvement stores, bookstores, cafeterias and specialty stores in the 1980s and early 1990s seemed to spread the company very thin. This focus on diversification is just one example of how the retailer has often not made the wisest choices when faced with a tight spot.

By the 1980s, just before the rise of Wal-Mart, Kmart had become complacent. It believed it would be the king of discount retailing, now and forever. It didn't perform an accurate SWOT analysis, but to be fair, who could have seen the rise of Wal-Mart to the position of the world's number-one retailer? Still, as Wal-Mart built new stores in town after town, supported by cutthroat pricing and solid logistics, Kmart's complacency would cost them. Part of the problem was that as Wal-Mart was pouring money into information technology (IT), Kmart's IT budget continued to shrink – not just once, but several years in a row. While Wal-Mart's logistics and supply chain management got sharper, Kmart's stagnated. And while Wal-Mart was able to squeeze more value out of its stores and its systems, Kmart lost ground. By the time Kmart had finally decided to start devoting more resources to IT, it was so far behind Wal-Mart that catching up would have been a near-impossible task without the recession in the early part of this decade. With the effects of the recession taken into account, Kmart instead was consigned to also-ran status among discount retailers.

Another problem was that Kmart did not correctly anticipate customer needs. For instance, let's say that Kmart buys a new style of shirt and stocks it in pink, yellow, green and blue. Further, let's say that the blue shirts sell out immediately; the store is left with inventory of the three other colors. Yet Kmart doesn't reorder the blue ones because 75 percent of its inventory is still unsold – it's still got plenty of that style of shirt to sell. Wal-Mart, meanwhile, would order a new shipment of blue shirts. Their model takes the customer into account, not the inventory – Wal-Mart understands that it's the color the customers want, not the style (in this case, anyway).

One of Kmart's biggest marketing miscues was the use of newspaper as its primary ad medium. Until about the 1980s, Kmart's primary form of advertising was flashy, expensive sales fliers that did not generate enough sales to offset their costs.