kmart strategy

28
Agenda Organizational Overview Industry Snapshot Competitor Analysis Financial Analysis SWOT Overview Current Strategy Strategic Issues Recommended Solutions • Implementation/Justification Recommendation Recap

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Marketing Strategy Case that I worked while in my MBA program

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Page 1: Kmart Strategy

Agenda

• Organizational Overview• Industry Snapshot• Competitor Analysis• Financial Analysis• SWOT Overview• Current Strategy• Strategic Issues• Recommended Solutions• Implementation/Justification• Recommendation Recap

Page 2: Kmart Strategy

Organizational Overview

• Founded by Sebastian S. Kresge in 1962• Number 3 discount retailer in the U.S.• Operates 1,479 stores in 49 states• Maintains 3 retail concepts• Filed bankruptcy in 2002• Merged with Sears, Roebuck & Co. in March

2005

Page 3: Kmart Strategy

Industry AnalysisKey Success Factors

Technology

• Advanced technology that enables

merchandising efficiency

Distribution

• Efficient Supply Chain Management• High return on inventory investment/high

inventory turnover• Good working relationship with suppliers• Low distribution costs• Low replenishment cycle times• Ability to predict consumer demand

Marketing• Courteous customer service• Breadth of product line and brand selection

Skills & Capability

• High sales per square footage (store productivity)• Effective merchandising strategies• Ability to meet local preferences and price

sensitivities

Other types• Overall low costs and underpricing strategies• Convenient store locations

Page 4: Kmart Strategy

Economic Conditions

DemographicsSociety Values/

Lifestyles

Legislation/RegulationsTechnology

Suppliers

New Entrants

Buyers

Substitute Products

Rivals

Kmart’s Microenvironment

Page 5: Kmart Strategy

Disposable Personal IncomeRetail Sales Approaching

41.5% in 2005

Consumer Confidence is beginning

to rise

Page 7: Kmart Strategy

Competitive Analysis

Variety

Expensive

Inexpensive

HighLow

Price

Page 8: Kmart Strategy

Product Line Strategy

How

A time phased plan for introducingproducts, each product targeting a specific target market

Use unique strategic brand alliancesand licensing agreements that areculturally specific to our target market

“Dora The Explorer”Kenyon “K-Mart” MartinSpecial Food Seasoning

Examples

Targets:African AmericanHispanicAsian American

Favorable market shareIncrease Barriers to EntryIncreased Image benefits

Advantages

Page 9: Kmart Strategy

0

50000

100000

150000

200000

250000

300000

2000 2001 2002 2003 2004 2005

Kmart

Target

Walmart

Financial Overview

Actual Revenues

Yr. U.S.

2000 35,925

2001 37,028

2002 36,151

2003 30,762

2004 23,253

* In millions of dollars

Historical Sales

Page 10: Kmart Strategy

0

1000

2000

3000

4000

5000

6000

7000

8000

2000 2001 2002 2003 2004 Gross Margin

Actual Margins

Yr. U.S.

2000 7,764

2001 7,296

2002 6,298

2003 4,504

2004 5,407

* In millions of dollars

Kmart Gross Margin

-2000

0

2000

4000

6000

8000

10000

12000

2000 2001 2002 2003 2004 2005

Kmart

Target

Walmart

Actual Net Income

Yr. U.S.

2000 (740)

2001 (530)

2002 (495)

2003 (636)

2004 1,106

* In millions of dollars

Kmart Net Income

Financial Overview

Page 11: Kmart Strategy

Inventory TurnoverApril 2005

Walmart 7.7 Target 5

Low Sales, High Inventory

SHLD 4.5

Page 12: Kmart Strategy

SWOT Analysis

Strengths• Buying Power

• Brand Awareness

• Big K-Mart

• Sears Acquisition

• Restate Locations

• 7% increase Stock

Weaknesses • Supply Chain Management• Poor Leadership• Bankruptcy • Poor store house keeping • Strategy execution• Lack of Customer service • Excessive slow moving inventory• Accounting practices

Opportunities• Buying Power

• Growth with Sears

• International Growth

• Big K-Mart

• Meaningful Acquisitions

• Technology

Threats• Poor Leadership

• Bankruptcy

• Poor store house

• Strategy execution

• Customer service

• NON Appealing to the youth

Page 13: Kmart Strategy

Kmart’s Downfall

• Weak customer image• Poor merchandise buying• Inability to maintain proper inventory levels• Inability to keep up with buyer preferences • Poor supplier relationships• Unsuccessful diversification initiatives• Mismanagement of capital investment funds• Inexperienced management• Dismal holiday sales

Page 14: Kmart Strategy

Facts About The Merger

• Merger announced November 2004; Completed March 2005

• Creates 3rd largest retailer in the U.S.• Valued at $12.3 billion• Headquartered in Hoffman Estates, IL• Expected to convert 400 Kmart stores

into Sears stores• Objectives:

– Expand “off-mall” format presence– Be more competitive with Walmart, Target

and Home Depot

• Goal:– Achieve a 10% operating profit margin

Page 15: Kmart Strategy

Strategic Issues

What steps should Kmart take to achieve the following:• Establish an efficient supply chain management system • Efficiently manage its inventory • Build a strong brand image• Become a top competitor in the discount retailing

industry

Page 16: Kmart Strategy

Competitive Strategy

Overall Low Cost Provider

Focused Low Cost

Brand Differentiator

Focused Differentiator

Best Cost Provider

Page 17: Kmart Strategy

Strategy Introduction

• In today’s retail and economic environment, retailers are searching for various ways to improve their financial performance without drastically adding new stores.

• With the increasing pressures of a competitive retail environment, retailers are having difficulty differentiating their business strategy, which results in declining margins

• The focus has shifted to implementing more effective merchandising strategies

Inventory is one of the most significant investments retailers make. Kmart has done a poor job in

managing its inventory and executing its merchandising strategy

Page 18: Kmart Strategy

• Strategy: Employ Merchandise Optimization Technology

Merchandise Optimization Technology– Emerging category of solutions that enable retailers to make more informed

decisions on profitable buying, allocating, and pricing decisions based on consumer demand

– Decisions include Pricing and Revenue Optimization, Demand Based Management, and Retail Revenue Management

– Applies sophisticated data process techniques to existing inventory sales and data, which accurately model future patterns of supply and demands on the item and store level

– Helps retailers make merchandising decisions with foreknowledge of their financial impact

– New approach to managing the merchandising lifecycle

To Address Several Merchandising Issues:• Poor supply chain management• Frequent stock out• Excessive inventory of slow-selling items• Unsound pricing strategies

Recommended Strategy

Page 19: Kmart Strategy

How Merchandise Optimization Technology will work in Kmart’s Business Environment…

Determine Buy Quantities

Manage Inventory

Seasonality

Analyze Performance

• Predict sales• Plan Promotions• Set size needs

• Create receipt flow• Configure prepacks

• Determine Promotions• Replenish in-store• Manage price adjustments

• Identify missed opportunities• Understand consumer behaviors• Inform future decisions

Flow Inventory To Stores

Kmart’s Merchandise Lifecycle

• Informs every decision along the merchandising spectrum, from setting the merchandise strategy to executing the plan.• Provides insight into future consumer demand and recommended strategies to maximize profits.• Helps to put the right product in the right store, to right customer at the right time!

Increase GrossMargin

Dollars by 5%

Increase GrossMargin

Dollars by 6-10%

Increase GrossMargin

Dollars by 6-10%

Increase GrossMargin

Dollars by 8%

Page 20: Kmart Strategy

• According to a study conducted by Accenture, it is estimated that the top-tier U.S. retailers $20 Billion in incremental gross margin dollars by employing Merchandise Optimization technology

• More than 60% of retail sales come from marked down merchandise. If prices are executed at the right time and enough to stimulate consumer demand Kmart will not be stuck with inventory shortages, dissatisfied customers, and lost gross margin dollars

• Implementing the MOT will increase Gross Margin Dollars by 33%• Retailers see the impact the next season after implementation.• According to a Harvard Business Review, retail users have reported that productivity rose

20%, improved customer service, with gains margins in the range of 5% to 15%

• Leading provider of Retail Profit Optimization solutions since 1983• Designs solutions for retailers whose priority is get the highest return on their inventory investment• Delivered solutions for numerous leading retailers such as: American Eagle, Outfitters, Bloomingdale’s, Target Stores, and Toys R Us• Implementation is fast, flexible, and financially beneficial• Typically takes approximately 16 weeks to implement• Costs to implement vary based on the size of the business ($2M- $8M)

Page 21: Kmart Strategy

The Strategy and Creative Approach

Brand Image Strategy:reinforces or changes the target audience’s attitude towardthe brand, primarily concentrating on psychological or emotional appeals.

Product Positioning Strategy:Carves out a niche for the brand in consumer’s mind’s relative to the competition as a means for differentiating the brand.

Page 22: Kmart Strategy

Competitive Strategy

Overall Low Cost Provider

Focused Low Cost

Brand Differentiator

Focused Differentiator

Best Cost Provider

Page 23: Kmart Strategy

Advertising strategy

• Target markets

• What is Target doing

• Historic ad campaigns

• What they should do

• Financial impacts

Page 24: Kmart Strategy

African American Segment:The Best Approach

• First understand them!- strong tie to historical experiences- pride togetherness and heritage- value family religion and church

• Use specialty media– 60% of AA feel that TV and print are

designed for white people– Use agencies that specialize in

reaching the African American market (i.e.Burrell Communications)

– 55% of households watch BET– 25% (4 million) of women read Essence

• Network TV - Reaches viewers ages 12-17 and 50+

Page 25: Kmart Strategy

Most Promising Markets

African American

Hispanic Asian American

Population 34,525,000 30,769,000 10,504,000

Percentage of population

12.7% 11.4% 3.9%

Average Income

$12,351 10,773 18,226

Page 26: Kmart Strategy

Hispanic/Latino Segment:The Best Approach

• First understand them! - Hispanic refers to origin, not race- Value culture, traditions and language- Very conscious of brand names

• Spanish TV- 86% of population watch Spanish TV during week- focus ads in major cities (L.A., N.Y., S.F. Chicago)

• Focus on family- Literacy and funding programs- Sponsorship of athletic teams- Promotional events (i.e. festivals and fairs

Page 27: Kmart Strategy

Asian American Segment:The Best Approach

• First understand them!- Hispanic refers to origin, not race- Value harmony and family togetherness- High value on education

• Print Advertisements/Billboards- More Asians in the workforce than other groups,

less time spent at home- Much larger percent eat out than Hispanics and African

Americans - Responsive to ads that promote cooperation and traditional

sex roles, and professionalism

Page 28: Kmart Strategy

Sit-Commercials