Kmarted: Where No Business Wants To Be

BY Dec. 27, 2010 13 Comments


When retailer Kmart filed for bankruptcy, it was at the time the largest retail bankruptcy in history and a major turning point for a century-old company.

The bankruptcy was followed by a criminal probe into the company’s executives, which included a just-settled SEC investigation into their former Chief Executive, Chuck Conaway. The bankruptcy was followed almost immediately by a merger with Sears, another struggling retailer. Though the company has been trying to turn around, even the good news, such as a profitable quarter, has been tinged with the bad, namely that they are lagging behind other retailers in the area of recovery.
The latest news indicates a renewed sales slump, even when the rest of the economy is turning around.

So how did the mighty Kmart fall so fast? There were many factors involved in the decline but a large part of the issue is simply that they got stuck in the middle without a niche they could dominate.

Stuck in the Middle Without You

Kmarts fiercest and largest rival, Walmart, has long been running away with the game. Faced with a foe many times its size, Kmart initially tried to undercut Walmart with lower prices. This proved futile, as Walmart, with its greater buying power and more efficient supply chain, could easily trump Kmart in this area.

When confronted with the reality, Kmart attempted to move more upscale and target higher-end customers, even going so far as to ink a deal with Martha Stewart. Unfortunately, there were already entrenched competitors in that area, including most notably Target, and Kmart’s brand had for so long been associated with “cheap” that it was a difficult transition.

The move went so poorly that Kmart and Martha Stewart parted ways last year as Stewart openly accused the chain of damaging her brand with shoddy stores and poor marketing.

Kmart found itself squeezed without a niche and no real hopes of finding a new one. A big part of why it continues to shuffle store concepts and close underperforming stores today.

Avoiding the Fate

One company that has done a better job at avoiding the fate is Subway. The chain of sandwich shops found itself in a tight spot, pinched between local sandwich restaurants that were usually cheaper and higher-end chains such as Quiznos.

However, Subway took two steps to carve out a niche for itself, first targeting the health-conscious with its marketing campaign, launching the now-famous “Jared” marketing campaign in 2000, and then launched the $5 footlong campaign in 2008, which kept the brand strong during the recession.

Subway saw the dangers and responded quickly, avoiding the issue altogether, completely avoiding being “Kmarted.”  As a result, the company has grown in franchises steadily for the past five.

End Result

All in all, the contrast of the two stories highlights the importance of finding and dominating a niche, something Kmart has failed to do but Subway has managed to do very well.

However, a new niche doesn’t have to mean a whole new approach to doing business. Rather, it can just be a new marketing campaign or a new audience for the same product. Subway realized this and thrived where Kmart is continuing to flounder.

For Kmart to survive, let alone thrive, it needs to find a niche for itself that goes beyond being in the few places Walmart isn’t. Otherwise, most likely there are even darker days ahead for the company.

How would you avoid being “Kmarted”?

Entrepreneurship, Your Brand
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  • http://www.moremoo.com Adam

    Hi Lior,

    interesting info here. Many big companies were not able to adapt on the current changing environment. For example Kodak, great huge company, which failed to adapt on new technological changes. And where is Kodak now?

    Your Kmart is another great example of fail. They failed because they were not able to adapt and not able to make the final decision on the right time.

    Thanks for this article.

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  • http://gettingtothapaper.com/2010/12/17/3-simple-ways-to-boost-twitter-followers/ William Tha Great

    Hey Lior,

    Thanks for the unique article!

    I like reading articles that are different from your usual that everyone in the bloggoshpere talks about. You article caught my attention with a creative title & get effort put into the post.I totally agree with you that in the niche your in times change rapidly, and you have to develop and stay ahead of the changing times. That is the only way not to end up like kmart lol.

    && my father loved kmart! Smh.

    Thanks again!

    God bless,
    William Veasley

    • Lior Levin

      thank you for the kind words William!

  • http://www.thesaleslion.com Marcus Sheridan-The Sales Lion

    Hi Lior, and thanks for the great read here. The history (or should I say rise and fall) of Kmart is such an interesting one that it could literally take several college semesters just to explain it all, but I think you did a fine job, and I very much like how you used the work ‘Kmarted’ as a verb.

    What am I doing?
    1. Embracing video marketing
    2. Embracing content marketing
    3. Doing my best to learn each and every day.

  • http://keepupwiththeweb.com Sherryl Perry

    Nice examples of retail stores and niche marketing. I think a lot of people forget about Kmart. Personally, I boycott Walmart because of their employment practices. I make it a point to shop elsewhere. Having said that, I don’t remember the last time I went into a Kmart. The only one around me is really run down and shabby. They need to polish their image and build awareness to be successful again.

    • http://internetentrepreneurconnection.com Hector Avellaneda

      Wal-Mart used to be a great store prior to the death of Sam Walton

      However, I think that when you Walton died, Wal-Mart lost the vision it really had in regards to it’s employees.

      The only reason I know this is because I have done some research in the area.

      However, there seems to be a trend among companies who lose their leaders, usually the one the embody the company vision, mission and WHY.

      A great example of this is Apple. Apple was a great company prior to Jobs leaving in in 1985. Between the time Jobs left Apple in 1985 and when he returned in 1996 Apple really didn’t innovate. It wasn’t until after Jobs returned that he brought back with him a new philosophy and here were in 2011, almost, Apple is by far the most innovative company in existence. They’ve revolutionized the way we listen to music, the we we talk on a cell-phone, and everything else that comes with it. Yet, they have the same access to resources and talent as other companies. What makes Apple special so consistently innovative? The fact that they clearly know WHY their in business and Jobs is the embodiment of that WHY.

      Do you think Microsoft will ever be the same now that Gates is gone? I doubt it. But let’s watch what happens.

    • Lior Levin

      I agree Sherryl. Seems like they neglected their business and who wants to come in to a business that was neglected?

  • http://internetentrepreneurconnection.com Hector Avellaneda

    Hi Lior

    Awesome Article!

    I’ve said this before and I’ll say it again. Trying to breed customer loyalty through manipulations doest work. Manipulations being offering great deals, low prices, buy one get one free, etc.

    I talk about this very same issue in 3 of my blog posts titled “internet entrepreneurs start with why” and successful internet entrepreneurs focus on 13.5%”.

    The “Low Prices” slogan works for Wal-Mart because we know that’s their WHY – their reason why their in business. I think K-mart on the other hand has never really been clear on why their in business (other than to make money). I think just recently they established themselves with the slogan “Theres Smart, then there’s K-Mart Smart” but what does that really mean? Nothing to me! But we know exactly why Wal-mart exists, right? “Lower Prices so You can live better” I believe is there slogan.

    For all intensive purposes, price manipulations work, but as soon as a competitor has a lower price you can bet your customer will leave you for the lower price, resulting in you having to lower your price even more so that you can regain that business – do you see how this can get really expensive really fast?

    I think that Subway is definitely still in the game but I also think that their campaign to lower the price of all foot-long subs to just 5 bucks has been extreme expensive for them. In fact, there were a few other attempts to lower their prices, to compete wit Quiznos, before reaching the $5 footlongs. If you remember correctly, some of those subs used to be well above the $5 mark.

    Subway will never be able to charge that kind of money ever again!

  • Lior Levin

    You’re right Hector. I always say that increasing your prices can never hurt your business image. But decreasing the prices can defaintly do!

  • http://www.lavenderuses.com Patricia@lavenderuses

    Hi Lior

    I am in a small niche, so I looked at my competition when I was writing my biz plan. Within my business plan I included ways to offer more than they do.

    Make sure I offer good customer service with added value that is not going to be expected. A nice surprise when products are delivered :-)

    Also giving prompt replies to any questions my readers/customers ask me.

    Treating customers with respect and the way I would want to be treated is also very much in my plan.

    Having quality products that I would use myself and having already built up trust with my readers; when I do product reviews there is already a level of trust.

    This also gives me an advantage as they know they are getting honest reviews and most people read reviews/testimonials before buying online. Will usually buy from someone they know and trust too.

    Charging fair prices and yet not undercutting the competitors to such a degree as to not make a profit is a must. As I am a small home business, rather than give discounts, I give small gifts with orders from my regular readers. I also add a hand-written thankyou with each order.

    Patricia Perth Australia

  • http://www.throwingabrick.com Roy Scribner

    Nice analogy, Lior. I would probably also contrast the stagnation in Kmart’s business strategy vs. Subway’s. Everybody saw the Walmart bus heading their way, but Kmart failed to react. “Innovate or die” is an old adage, but it’s one that holds a lot of merit in the retail space. Walmart offered consumers more variety at comparable or cheaper prices, and Kmart failed to react (or respond to consumer demand, years earlier.

    Subway saw the writing on the wall (consumers want healthy and later, cheap) and responded with an aggressive re-imaging of their brand. One is left to wonder where the pizza chains were, while all of this was occurring?