K-Mart's Bankruptcy -- a Case Study
Why did the store synonymous with low prices for relatively high quality, the famed purveyor of blue-light specials, fall into dissolution and financial despondency and eventual bankruptcy in January of 2002? (CNN, 2002) The fall of Kmart the mega-store cannot be pinned simply to single internal or external phenomena, although the company was misguided and mismanaged on multiple levels, and the economy was enduring one of its rockiest retailing passages at the time. What left Kmart "singing the blue-light blues," (LaMonica, 2002) can be subscribed to a variety of marketing, positioning, and branding phenomenon, as well as economic miscalculations and the company's leadership.
In 2002 analysts later said that Kmart management had made two big mistakes during the holiday shopping season when retailers consistently attempt to land themselves in the 'black' after 'black Monday,' the season between Thanksgiving and the New Year. Instead, Kmart had cut back on advertising during a season when consumers were particularly unwilling to part with recession-threatened cash and failed to brand itself in a homespun and patriotic fashion, as did Wal-Mart. Furthermore, it entered a price war with Wal-Mart it could not hope to win. (CNN, 2002)
But the undoing of the retail giant in the months after the recession began to grip the American heartland and do considerable damage to the infrastructure of blue chip stock as well as blue light specials shows that Kmart's fall from grace cannot be blamed on the rise of Wal-Mart or Target alone, for it was one that had been long in coming, given internal corporate decisions as well as external economic phenomena such as the recession and the rise and rise of Wal-Mart in consumer's hearts and pocketbooks.
Firstly, on a purely internal in-house basis, it was later revealed on January 25, 2002 that there were substantial accounting irregularities at Kmart, exaggerating profits for a long period of time. On December 9, 2002 Kmart admitted it had discovered additional mistakes in its books and that it had restate its financial results for the last three years as well as merely 2002. Kmart had also been overextending itself for a long period of time. On March 8, 2002 Kmart announced plans to close 283 stores and cut 22,000 jobs by June because it could not financially support this expansion anymore. Stores included 18 in Michigan, some of the least profitable enterprises.
Having to cut stores generated bad press for Kmart in an area of critical regional strength and consumer loyalty. Also, the giant spatial sprawl of Wal-Mart as a retail structure, not simply the dominance of the company was partly to blame -- customers preferred that they could buy more things in the geographically spread-out Midwest at Walmarts, and did not have to travel to other stores to buy groceries, than they could at Kmarts. Thus, the closing of so many Midwestern stores also showed to Kmart stockholder everywhere that the flaws of the Kmart organization struck at the heartland, the heart of Kmart consumers. ("Timeline," 2003)
Another problem with Kmart was that the Chief Executive Officer or CEO of Kmart of 2002 seemed more interested in improving his own status as a leader and his own financial profile, rather than creating a new direction for the company. Kmart Chairman and CEO Chuck Conaway ultimately had to resign after fewer than two years of service, walking away with at least $9 million in his pockets and leaving investors whom had lost more than $4.6 billion during his reign behind. ("Timeline," 2003) Significantly in a statement on the Tuesday night, directly after the debacle of Conaway's early resignation, Conaway's successor Edward Lampert promised to take an active role in Kmart's affairs. "Going forward, Kmart will be led by a board that has a substantial investment in the company," he said. (Haber, "New Executive," 2003)
In terms of its market strategy and positioning Kmart has since made attempts both to increase its revenue amongst its traditional Midwestern base, as well as to expand its outreach to new...
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