Why Kmart Still Sucks, Losing Stores, Staff, Customers

Adam Levine Celebrates The Launch Of His New Women's Collection For Kmart And Shop Your Way
Michael Kovac/Kmart/Getty ImagesAdam Levine has a new fashion line at Kmart.
In "Rain Man," autistic savant Raymond Babbitt (Dustin Hoffman) said it best in 1988: "Kmart sucks." Almost a quarter century later, that catchphrase rings true as Kmart closes more stores, lets go more employees and loses more customers. Kmart and Sears are both part of Sears Holdings (SHLD). It was brought out of its 2002 bankruptcy by hedge fund whiz Eddie Lampert with the promise of a turnaround,

The Writing on the Walmart

The first Kmart -- founded in 1962, originally part of the Kresge chain -- preceded the first Walmart (WMT) by only four months, its death sentence signed at its birth. In the 1960s, Kmart grew to 600 stores, but it has since barely doubled that number. Walmart, meanwhile, has grown to 11,000 stores in 27 countries by perfecting its aggressive strategy of negotiating its suppliers down to bare-bone margins to get those everyday low prices.

Kmart limps along, the Jonah of discount chains, never earning the status of J.C. Penney (JCP), Target (TGT), Kohl's (KSS), Macy's (M) and Sears. Those blue light specials began in 1965 and have continued on and off, but Kmart has still struggled. It remains one of the larger U.S. mass market retail chains.

Last holiday season Kmart sought customers but got controversy instead with a racy holiday ad for its private label Joe Boxer underwear. It has tried other similarly edgy ads and fashion lines by celebrities Adam Levine and Nicki Minaj, but America's not buying it. At least not young or rich America. Of these big boxes, Kmart has the oldest and poorest trending shoppers.

And while J.C. Penney spent a fortune upgrading its stores under CEO Ron Johnson, Kmart started looking down at heel in the early '80s, prompting the "Rain Man" quote. Much like shopping at Sears, the attitude is still careworn.

A recent Friday afternoon visit to one Kmart -- in an upscale neotraditional town where townhouses rent for $3,000 -- revealed rusty shelving and fixtures and a rundown feel, especially in comparison to J.C. Penney or Kohl's. Salesclerks outnumbered customers by almost two to one, but not once was I asked if I needed help. Although clothes littered the floors, sales associates were hanging out or aimlessly wandering. In one hour, I saw one lone employee straightening shoes. And why should they bust their butts when annually hundreds see their jobs disappear?

Shop Their Way? Or No Way?

More and more, Kmart and Sears are depending on their joint Shop Your Way shopper loyalty program and online and mobile sales, offering in-store pickup of items bought online at either website. According to the recent chairman's letter to shareholders, Shop Your Way comprises 72 percent of sales at Sears and Kmart in the fourth quarter of 2013.

The company plans to phase out promotional pricing, like those blue light specials, in favor of solely rewarding loyalty points. J.C. Penney learned the hard way that its middle income shoppers love coupons and promotions, so Kmart is taking a decided risk with this strategy. (Kohl's has its coupons, and Walmart its everyday low pricing.)

Kmart depends highly on some Sears brands -- like Craftsman, Diehard and Kenmore -- to bring in customers. But it just can't compete with the private label brand king Walmart or Target with its more popular and trendy private label brands.

Maybe Sears Holdings doesn't want to throw good money after bad in Kmart's case. Lampert may boast in his blog about turnaround progress, but there is also a page on the corporate website dedicated to the sale and lease of store properties. After closing 172 stores in 2012, the company recently announced the closing of 80 stores this year. It didn't specify which were Kmarts but added there would likely be more closings of underperforming stores. That could be plenty, as its last earning release showed Kmart same-store sales were down 2.2 per cent, an improvement over the previous year's 4.6 percent, but the loss to Sears Holdings' shareholders in 2013 was a remarkable $1.4 billion.

Etailer Who Shall Not Be Named

Lampert admits in his blog that shopping behavior has changed thanks to an etailer who shall not be named (like Voldemort in the Harry Potter series), but it's obviously Amazon.com (AMZN). He also promises a rapid transition to a digital and social platform to service those Internet-savvy shoppers. Analysts hint more darkly that Kmart as a bricks-and-mortar shopping presence may sooner rather than later be as fictional as "Rain Man's" Oak Street Kmart in Cincinnati.

Walmart and Target have in-store pickup, flashy websites and apps, so whatever competitive advantage Kmart has seems to rest solely on the shoulders of its Shop Your Way members. Possibly, the Kmart blue light special may move to the virtual cloud, but Kmart as a physical retailer isn't long for this world.

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