Attention, K mart Shoppers: Chain’s Emphasis Is Shifting
K mart Corp. is looking for a little respect.
By using celebrities to sell its goods and by expanding into a wide array of specialty stores from Waldenbooks to Builders Square do-it-yourself stores, the retailing giant is trying to move beyond its blue-light specials and blue-collar shoppers.
“My goal is to make K mart the most respected dominant retailer in America,” says Joseph E. Antonini, who this week assumes the chairmanship of the nation’s second-largest retailer.
The famous blue-light specials remain at the 2,200 K marts across the country, but the rest of the 25-year-old American institution has slowly but steadily been changing under the helm of departing Chairman Bernard Fauber, 65, and Antonini, who has been K mart’s president since August, 1986.
K mart’s aim is simple: expand its customer base to include a more affluent, fashion-conscious consumer.
To meet that goal, K mart has been busy upgrading its stores and merchandise. The first notable changes began taking place in the early 1980s, when the retailer started to remodel its stores, replacing the endless racks of clothes with smaller, more varied displays highlighted by brighter signs and graphics.
Introduced Celebrity Line
At the same time, the stores began selling more expensive, popular name-brand merchandise, including Sassoon and Adolfo clothing and Cuisinart food processors.
Then, in 1985, K mart began upgrading its own private-label merchandise, introducing, among other things, the company’s first celebrity line--the Jaclyn Smith Signature Collection of women’s sportswear sponsored by one of the television stars of “Charlie’s Angels.”
The Jaclyn Smith line was an instant success, with more than 75% of the initial order sold out in just 11 weeks. Its success continues today, with the clothes sold just days after they reach the store.
“There’s something magical about that line,” said Antonini, who was responsible for its introduction. “Its clothes change five times a year. It’s amazing to see customers wait for the change; it sells so fast,” he added.
With the backing of hostess Martha Stewart, K mart is set to introduce another celebrity line in its Kitchen Korner home-fashion department.
Having signed a five-year contract with K mart, Stewart month will soon begin issuing Kornerstone tip sheets to K mart shoppers, giving them advice on a variety of subjects from how to use a cheese grater to how to plan a low-cost outdoor brunch. Stewart also will work with K mart merchandisers to create new products, bearing her name, for the kitchen and home entertaining.
Offers Customers a Choice
“Changing K mart doesn’t necessarily mean losing our fundamentals or our discounting concept,” Antonini said in a recent interview. Rather, it means giving customers a greater choice in certain key areas, he said.
“Instead of just carrying all cheap merchandise, we’re now giving our customers a choice. Today the customer can buy both a $3.96 and a $12.96 pair of shorts. The $12.96 pair will have a belt buckle, a pleat, a pocket flap and a nice fashion. A $3.96 will be a straight pull-on short you might want to wear around the house. The point is we carry both and everything in between. We used to carry just a $3.96 and a $4.96 short.”
These changes have won applause from retailing experts and financial analysts who in the past often criticized the company for responding too slowly to the changing consumer and retail environment.
“It is slowly catching up with the shopper orientation of today,” said Kurt Barnard, editor of his own retailing newsletter. “It has stopped being the polyester empire which it was,” he added.
“Once customers recognize the fashion message K mart is trying to project, the retailer’s slogan, ‘America’s favorite store,’ will be accepted by the middle-America, middle-income consumer, whether he wears a blue or white collar,” commented Walter F. Loeb of Morgan Stanley & Co.
Diversification Campaign
Much of the credit is given to the hard-charging, no-nonsense Antonini, who has overseen most of the chain’s merchandise changes. The 46-year-old retailer began his retailing career as a stock boy in a West Virginia K mart. “He has creativity and a sense of urgency that K mart needs,” Loeb said.
In addition to remerchandising its stores, K mart has also embarked on an aggressive diversification campaign--buying specialty stores and launching new retailing ventures--after concluding that the opportunities for expanding K mart stores were narrowing.
“We recognized many years ago before the actual fact that we couldn’t build 200 K marts a year forever,” said Michael G. Wellman, vice president for corporate planning.
As a result, the company began reviewing its options. “We realized that our real expertise is our ability to replicate stores very quickly,” Wellman said.
So K mart began to buy or initiate a variety of retailing ventures that it thought would lead to rapid and profitable growth and attract shoppers who wouldn’t normally shop at a K mart. Its first efforts, however, weren’t as successful as it had hoped.
Already one of the largest food operators in the United States through its K mart operations, the company first decided to enter the “food away from home” field Wellman recalled.
Discount Designer Clothes
In 1980 the company bought the 76-unit Furr’s Cafeterias Inc. chain, based in the Southwest. Three years later it bought Bishops Buffets Inc., with 30 cafeterias in the West and Midwest.
Although profitable, “it couldn’t be expanded as well as we wanted,” Wellman said. Consequently, K mart sold the two chains last year.
K mart also decided to dabble in the growing off-price clothing business, opening Designer Depot, which sought to sell women’s designer clothes at discount prices.
But the venture, which grew to 79 stores, was never profitable, so K mart also closed it last year. “We misjudged the market; we didn’t have the expertise (in the off-price women’s apparel area) and weren’t too good at the merchandise end,” Wellman said.
The chain has been more successful, however, in its three other major diversification attempts.
In 1984, K mart leaped at the opportunity to buy Waldenbooks, a 955-bookstore chain that was being sold by Carter Hawley Hale Stores in the aftermath of its successful but costly takeover battle against the Limited.
“We liked the book business because we do a good business in books in our stores,” Wellman said. “But there was only one way to get into that--by buying either Waldenbooks or its competitor, B. Dalton. Those were the two national chains already in operation and there wasn’t room for a third one,” he added.
Could Expand Rapidly
Thus, when Waldenbooks became available, K mart moved quickly, paying $295 million for the chain.
“When we first took it over, we were told that the book business was not a growing business,” recalls Antonini. “We have proved that false,” he added, noting that the chain has already grown to more than 1,000 stores.
“In the next five years we could add several hundred more stores,” particularly as Waldenbooks experiments with smaller specialty stores, such as Waldenkids, Walden Software and Walden & More, which combines books with software and video.
Given the large sales of health and cosmetics in K mart stores, the company also decided an acquisition of a drugstore chain would be another good fit. So in 1985, the company bought the Pay Less drugstore chain in the Pacific Northwest for $500 million.
For the time being, K mart plans to expand the chain only in the Northwest, opening up 40 to 50 stores a year. “We have no plans to move it any further out (nationally) at this time,” Antonini said.
To date, K mart’s most controversial diversification attempt has been its move into the do-it-yourself home-center business.
“People went to K mart for small projects--new light fixtures, new faucets and a new kitchen floor. But they didn’t go to K mart to buy windows or add a room or refurnish a basement. When the warehouse do-it-yourself concept came along, we knew the growth potential,” Antonini said.
Acquired Small Chain
Initially, K mart teamed up with the Hechinger Co. of Landover, Md., to launch a nationwide chain of do-it-yourself stores to be called the Home Team.
However, differences in retailing philosophy and operating methods made it impossible for executives from both firms to agree on a store format, so the venture was called off.
“I think it was all for the better as it turned out,” Antonini recalled recently, because just a few months later K mart bought Home Centers of America, a small chain of nine do-it-yourself warehouse stores that K mart renamed Builders Square.
“It’s been the most controversial, no doubt,” of all K mart’s diversification programs, Antonini acknowledged, largely because it has lost money since the beginning. “But we’ve made tremendous progress in the past years, taking the chain from nine stores to 123 stores in three years. That’s significant growth for any company. But even more significant, we hope to be close to breaking even by the end of this year. Right now the potential for Builders Square is just unlimited.”
As if these ventures weren’t enough, K mart launched another diversification program in August when it disclosed plans to open a “hypermarket,” about 2 1/2 times the size of a K mart, to sell general merchandise and food. The first store, scheduled to open late next year, will be in partnership with the Alabama grocery-store chain, Bruno’s.
Together, the specialty chains accounted for 10.5% of K mart’s sales last year, which totaled $23.8 billion. By 1991, K mart officials hope the specialty division will ring up at least 20% of the company’s revenue.
Reminiscent of Start
With so many ventures going at once, some financial analysts question whether K mart will succeed in its diversification efforts. “That’s an if-ish part of K mart’s strategy,” said Fred E. Wintzer Jr. with Alex. Brown & Co. “Very few retailers can do that successfully.”
K mart’s vigorous entrance into the specialty retailing industry is in many ways reminiscent of the company’s decision 25 years ago to create K mart. At that time, K mart’s predecessor--S. S. Kresge Co.--had concluded that as a five-and-dime store, its growth opportunities were limited.
So in 1962, the company opened its first discount department store, called K mart, and continued to stamp out carbon copies at an average rate of 150 a year until the late 1970s. “We legitimized the entire discount store business,” Fauber recalled.
With K mart’s success, the company’s name was changed, and its attention to the variety store industry diminished over the years--to the point that the chain sold off its remaining Kresge stores last April.
Antonini insists that K mart stores will remain the core of the company’s business. As proof, he notes that more than 200 stores will be refurbished, and 40 to 50 new stores will be opened annually.
“K mart is a powerful engine with 25 years of experience in the K mart division and 85 years experience as a retailer that has unlimited potential,” Antonini said. “We’re on a roll.”
