With the collapse of KMART
Kmart regaining investor confidence
Back from bankruptcy, retailer finds competitors are tougher than ever
By SARAH KARUSH
Associated Press
05/07/2004
ROSEVILLE, Mich. -- A year after emerging from bankruptcy, Kmart Holding Corp. has managed to regain its financial health and the confidence of investors. But the hardest part of its recovery is yet to be achieved: winning back shoppers.
Kmart, which in March posted its first profitable quarter in three years, has impressed Wall Street with a more efficient operation and its ability to amass $2.1 billion in cash. Shares in the reorganized company have nearly tripled over the past year to $44.
But customers, who started turning away from the Troy, Mich.-based company over the past decade, are still defecting to Wal-Mart Stores Inc., Target Corp. and smaller competitors. Kmart's same-store sales, which compare business at stores open at least a year and are considered the best measure of a retailer's health, have extended their decline, dropping 13.5 percent last quarter.
Reversing that trend is the crucial next step, analysts say.
"They've actually come out of bankruptcy in better shape than most big companies coming out of bankruptcy," said Richard Hastings, retail analyst at consulting firm Bernard Sands. "The concern is that they're not gaining market share in any category at a time when competitors are getting bigger and stronger."
Marisa Lenhard, a retail analyst at Sigma Investment Counselors, said now that the company has swung to a profit, investors are going to be eager to see same-store sales improve.
"You can only cut costs for so long," she said.
So far, Kmart has said little about how it intends to woo back customers. It has been remodeling stores, but there has been no announcements or even hints of ad campaigns or image overhauls that would point to a definitive new marketing direction. In public statements, the company tends to emphasize its improved balance sheet.
"Today, Kmart is a financially strong company," Kmart chief executive Julian Day said in a statement timed for Thursday's anniversary. "All of us at Kmart are pleased with the responses of our customers and vendor partners."
Kmart's long-term viability will depend on whether it can distinguish itself from similar stores. On price, it can't compete with Wal-Mart, which has enormous buying power. Target, meanwhile, has the edge on style.
Ken Bernhardt, a marketing professor at Georgia State University, said Kmart's best bet is to cast itself as the premier store for a few particular categories - finding its own niche in the discount market. "If they can develop some departments where they really excel, particularly in merchandising and providing great value for consumers, then they can get them in the store," he said.
Emanuel Morales, 28, of Millville, N.J., who had stopped at the Kmart on U.S. 40 near Bear on Thursday to buy a pan, said the quality of products at Kmart is superior to that of competitors such as Wal-Mart.
"I hope they continue to work things out and keep going, because I like coming to Kmart," Morales said.
Robert Doremus, 43, of Middletown, said the store's location is the biggest appeal for him. "It's convenient to get to from my home," he said. "Wal-Mart can be a pain to get to."
But Fayketta Medearis, 18, of New Castle, said she considers Kmart inferior to Wal-Mart and Target in terms of price and selection of products.
"I like the other stores more," Medearis said as she exited the Bear-area Kmart on Thursday. "I only come here every now and then."
That assessment illustrates the obstacles still facing the retailer. In an annual University of Michigan survey of customer satisfaction, Kmart remained at the bottom among major retailers this year.
