Kmart's Bankruptcy

On January 22, 2002, Kmart filed for Chapter 11 bankruptcy protection becoming the largest retailer ever to do so in U.S. history. Most industry analysts attributed the immediate cause of the company's bankruptcy filing to a dull holiday season and stiff competition from WalMart and Target as the chain's more fundamental problem. But competition wasn't the root cause of Kmart's consistently poor performance. The real reason for Kmart's poor performance is that Kmart never had a marketing strategy. Kmart completely misunderstood its market and was positioning itself in the wrong direction. Also, on the strategic side, there are issues of where stores were located. On the whole, Kmart stores did not seem to be sited as well as the stores of the competition. Then there was the issue of technology. While Wal-Mart was becoming the relentless efficiency engine that we know today by investing in technology and streamlining the supply chain, Kmart held back. As Wal-Mart developed an infrastructure that enabled it to lower prices, Kmart slipped into a price disadvantage. This paper discusses these strategic problems that led to Kmart's poor performance.

The first Kmart store was opened in Garden City, Michigan., in 1962 (the same year that Wal-Mart and Target began operations) by the S.S. Kresge Co., a five-and-dime chain that was founded at the turn of the 20th century in Detroit by Sebastian Spering Kresge. By the end of 1963 Kmart had 63 stores converted from Kresge's. By 1977, Kmart generated nearly all of Kresge's sales, and the company changed its name to Kmart Corp. Kmart sold the remaining Kresge stores in 1987.

Kmart's greater problems stem from its poor brand strategy and negative image among consumers. In 1965, Kmart introduced the technique that was to become its trademark - the "Blue Light Special." Shoppers in a Kmart would hear the words, "Attention Kmart shoppers." Somewhere in the store a blue light would start flashing. From all over the store, shoppers would race to the Blue Light area to get special discount prices, usually on closeout merchandise. The limited-time sale strategy gave Kmart an identity. In 1991, Kmart discontinued the Blue Light Special, saying it had become too campy. In fact, it was Kmart's dirty, unkempt stores that generated that reputation. Kmart had a chance to revive the BlueLight in 2001. That concept was so powerful that ten years later, when the concept was re-introduced (too late), almost two-thirds of Americans recognized the Blue Light Special and associated it with Kmart.