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KmartStrategic Management Case Study

February 24, 2015

Bailey Hopper, Justin Howard, Taylor Houle, Christopher Goggin, Jared Hofer, Ge Changlin, & Iesha Hall

The Start of KMart

• Founded in 1899• Filed Chapter 11 in 2002• Acquired by Sears in March 24, 2005• Sears Holdings Company is located in

Hoffmann Estates, IL.

Sears Holding Corporation(SHC)

• Kmart and Sears merger in March 24, 2005• There are operations in three business

segments: Kmart, Sears Domestic, and Sears Canada.

SHC & Kmart’s Strategy?“Focus on a member-centric retailer leveraging

Shop Your Way and Integrated Retail”

Mission"We are committed to improving the lives of our customers by

providing quality services, products and solutions that earn their trust and build lifetime relationships."

VisionCreate lifelong relationships built on trust.

5 Key Pillars for Kmart’s Strategy(Core Competencies)

1. Creating lasting relationships with customers by empowering them to manage their lives.

2. Attaining best in class productivity and efficiency. 3. Building our brands.

4. Reinventing the company continuously through technology and innovation.

5. Reinforcing “The SHC Way” by living our values every day.

The plan to succeed in transformation?

• “Leveraging Shop Your Way and Integrated Retail as the foundation of

our member-centric business model

• Realignment of our of businesses to become a more focused company

• Enhancing our financial flexibility to support and fund our transformation

• Allowing shareholders to participate in value creation actions”

Is the strategy working?

Analyzing SHC/Kmart’s Financial Data

Current Price 52 Week High Market Cap. Existing # of Shares

Sears Holding $32.94 $48.25 $3.51 Billion 106.5 Million

Stock Information

2013 2012 2011 2010 2009

Revenues $36,188 $39,854 $41,567 $42,664 $43,360

Net Income (loss) ($1,365) (930) (3,113) 122 218

Total Assets $18,261 $19,340 $21,381 $24,360 $24,901

# of Stores 2,429 2,548 4,010 3,949 3,862

SHC (monetary data in millions)

5 year Total

Sears Holding

Revenues $164.6 Billion

Net Income (loss) ($5.07 Billion)

Total Inventory Total Sq. Ft. Inventory/Sq. Ft.

Sears Holding $7.56 B 281,960,000 $26.81/sq. ft.

Inventories

General Environment Analysis

Political/Legal

Economic

Technological

Global

Demographic Sociocultural

CompetitiveEnvironment

Industry Environment

Components of the General Environment

Demographic

Gender Female

59%Male

41%

Marital Status Married

46% Unmarried W/ Partner 9% Single

23% Divorced

16% Widowed

6%

Age Range 18-24

7% 25-34

13% 35-44

15% 45-54

24% 55-64

21% 65+

20%

Income < $25,000

33% $25 –$ 75,000 56% >$75,000

11%

Economic

Nature and direction of the economy in which a firm competes or may compete

• Economic Conditions in North America & Canada • Declining Gas Prices• Consumer Price Index• The Recovery in the Real Estate Industry• The decline/growth in Unemployement

Sociocultural

• Hassle free parking • Rewards program: Kmart offers loyalty cards that give customers points. Users

gets $1 in store credit for every $100 spent• Kmart targets ethnic customers• 15.2% are Hispanic 15.4% are African American 4.8% are Asian Pacifier• Approximately 35% of Kmart’s workforce represent multicultural minorities• 53% of the workforce is made up of females and 47% males• Kmart works with minority owned vendors• Kmart promotes battery recycling

Global

• Canada• First store built in 1929• In 1983, Company restructuring and closed 5 Montreal store• In 1998, Financial difficulties, sell 112 stores to sellers (HBC)

• Australia• There is 15 stores in New Zealand (Richmond Nelson)

• Eastern Europe • Purchased 13 communist department stores• There are large troubles in US caught up with its European

operation later in the decade.• The K-Mart sold its 13 stores to force operation in North American

• Mexico • There are 4 stores in suburbs of city; half of store area is devoted of

groceries• In 1997, sold to Mhyper Market.

Technological

• Retail relies on computer systems to process transactions, summarize results, and manage the overall business.

• Technology is reshaping business

• Internet is offering customers more shopping options.• More competition

• Web-based markets Amazon.com• Television Shopping Network

• Barcoding and computerized billing systems

• Point-of-sale systems increase sales • Cash, check, credit- and debit-card payments.

Political /Legal

• Handling of hazardous waste • “Failure to warn” • Sales Tax • Federal Food Stamp Act • Asbestos regulation • Accurate weights and

measurements • Price-fixing (colluding with

other big-box retailers) • Alcoholic Beverage Control Act

• Sales of expired products • Federal labeling and packaging

requirements • Disabled access (ADA / Unruh

Act) • Exclusive business dealing

(special deals for specific vendors)

• False advertising • Tobacco regulation

Industry Analysis

Threat of Substitute Products

Threat of New

EntrantsThreat of

New Entrants

Rivalry Among Competing Firms

in Industry

Bargaining Power of Buyers

Bargaining Power of Suppliers

Six Forces Model of Competition

Threat of New EntrantsLow

• Barriers of entry are relatively high in discount retail industry. – There is a lot of investment and capital needed to open

large discount stores• Difficult to create reliable suppliers• Economies of scale• Difficult to establish brand loyalty with new entrant

Bargaining Power of SuppliersLow

• Large retail stores have a diverse range of suppliers

• There are multiple suppliers that offer substitutes for products

• Switching costs are low for retailers• Buying in bulk

Bargaining Power of BuyersHigh

• Consumers are extremely price sensitive• Low switching costs• Little brand loyalty when it comes to bargain shopping• Large number of retailers

Threat of Substitute ProductsHigh

• Customers are price and quality sensitive of products.

• Switching costs are low.• However, in bargain retail, the cleanliness of

stores, number of products, and variety matter.

Rivalry/CompetitionHigh

• Many retail store with similar products, quality, and prices

• Walmart #1 US retailer and Target #4• Wal-Mart and Target have defined strategies

– Wal-Mart Low cost– Target Differentiation

Competitor Analysis

vs.

Competitor Analysis

WalmartImprove customer experience

Beat competitors prices

Expand product assortment

Future Objectives•How do our goals compare to our competitors’ goals?•Where will emphasis be placed in the future?•What is the attitude toward risk?

Kmart Increase market share in the retail

industry Increase customer retention among

target audience Increase overall sales

Competitor Analysis

Walmart• Improving its inventory efficiency and it's planning to

open more checkout lines

• Wal-Mart rolled out a new app last year called Savings Catcher, which helps shoppers compare prices on merchandise

• Make sure customers are not overwhelmed by different choices

Kmart• Engage customers through brand repositioning

to gain a competitive advantage with the target audience

• Enhance in-store and online customer experiences by improving customer service, communication, and engagement efforts

• Identify and accommodate customers’ needs and demands by implementing a new pricing strategy

Current Strategy• What are companies doing?•What would the companies like to do?

Competitor Analysis

Walmart• Develop better employee and employer

relationship• Improve supplier empowerment• Sell better quality products

KMart

Industry• Provide value to customers• Define knowledge, systems, tool and

processes capabilities that create differentiated value

• Select a set of product and services that best leverage unique capabilities

• Choose a coherent way to competing

• Develop a “must have” item for particular consumer segment

• Revive company brand be bringing outsiders to refresh store’s brand

• Revamp ordering and supply management

Assumptions•What does the competition believe about the current industry and about what the companies themselves need to be concerned with?

Competitor Analysis

Walmart KMart

Capabilities•What are the competing firms capabilities and strengths

• Sells family apparel, household items, health and beauty products, household needs, electronics, toys, fabrics and crafts, lawn and garden, and jewelry.

• Operates in U.S. and 9 other countries. • Offer lowest prices in bargain retail

market.

• Offer special layaway programs

• Located in urban areas.• Exclusive brands, and brand

loyalty.

Competitor Analysis

KMart’s key competitive advantages are:

Future Objectives

Current StrategyAssumptions

Capabilities

Response•Where do we have a competitive advantage?•What does Kmart•want to continue doing to gain market share over the competition?

• Valuable real estate• Shop Your Way Rewards• Exclusive brands

• Martha Stewart, Nicki Minaj, Joe Boxer, Route 66, etc.

Value Chain Analysis

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Primary Activities

Firm Infrastructure

Human Resource Management

Technological Development

Procurement

Inbound L

ogistics

Marketing

& Sales

Service


Primary Activities

MARGINSupportActivities

MARGIN

Inbound L

ogistics

• Sears Holdings Corp. has a network of 45 distribution centers

• 100 local delivery operations to make sure all stores remain stocked and that online orders are fulfilled.


Primary Activities

Operations

MARGINSupportActivities

MARGIN

Inbound L

ogistics

• Implementation of new operating software to support their new “Shop Your Way” technology


Omin-Channel FBS (Fufilled by Sears) Partnering with UPS to ensure fast delivery and availability on products

Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics


• Social Media Sites & E commerce site• Retail Stores that offer both Kmart and Sears products• Promotional Events• Layaway Program

Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics

Marketing

& Sales


• In store purchasing or Kmart.com• Shop Your Way Program• Customer Service Contact• Sears Auto Centers

Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics

Marketing

& Sales

Service


• Managed By Sears Holding• Supplier Diversity – minorites and women owned enterprises• RIM (Retail Inventory Method)• MyGofer

Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics

Marketing

& Sales

Service

Procurement


• Mobile App/Digital Retailing• Omin-Channel-COOL (Customer Order Orchestration Layer)• Investing in Hadoop

Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics

Marketing

& Sales

Service

Procurement



• Work Your Way Program• Sears Training Centers• Rewards and Recognition for Diverse Hiring

Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics

Marketing

& Sales

Service

Procurement




Primary Activities

Operations

MARGIN

Outbound

Logistics

SupportActivities

MARGIN

Inbound L

ogistics

Marketing

& Sales

Service

Procurement



Firm Infrastructure

• Publicly traded company• Member centric and integrated retail• Continuing to reinvent the company• Provide quality services and products

Value System Analysis

Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain

Kmart makes sure only quality products are received from suppliers. The partnerships it has to be the sole provider of certain brands creates a dependent and strong relationship with suppliers and encourages continuous quality products and quality displays to sell them.


Kmart is a member-centric integrated retailer that offers a wide range of products and speciality items from clothing, to hardware tools. And they are the home of the “Shop Your Way” rewards program



Kmart has partnered with numerous brands to offer a wide variety of products from Craftsman tools to Joe Boxer clothing. These quality brands have built high reputations for themselves and have high marketability. With these reputable brands only the highest quality products are sold to consumers.



All of Kmart’s products are offered on their website which also allows them to sell products that they do not offer in stores. Customers have the option of using the year round layaway program. Consumers also have the ability to sign up for Kmart’s rewards programs. Sears is moving more into the commercial real-estate market, using the land gained from closing unprofitable stores.


SWOT Analysis

Strengths

• Customer rewards system– Shop Your Way

• Layaway program• Employee benefits• Wide variety of products• Valuable real-estate• Located in concentrated urban

areas.

Weaknesses

• Stores are poor quality– Bad lighting, dirty

• Poor employee relations• Poor product quality• Overleverage financial

position• Closing of store have

affected brand

Opportunities• Falling energy costs• Expanding foreign markets• Acquisition of outside

brands/products/celebrity endorsements• Improving economy/Lower employment• Rising minority population• Acquisitions of newer brands and labels can

improve sales• Private label growth

Threats• Competition• Reduction in government subsidies• Reduced negotiation power with suppliers due to

reduced size• Economic Downturn• Data breach/payment information theft

Strategic Formulation

Strategic Alternatives

• Product development

• Customer Relationships

• Invest in technology

Strategic AlternativesProduct Development

Alternative Rank Pros Cons

Develop more differentiated product lines 2

Moving into a more differentiation market Better

qulaity products

Expensive for research and endorsements

Sell/Lease property 1 More income and reduced expenses

Losing the tradition sense of operation

Maintain current operation with product lines 3 No increased expense and

develop the current market

Won't be able to attract new customer and continue to lose market share to competitors

Strategic AlternativesCustomer Relations


Maintain current relations with buyers 3 Maintain relationships with

customer Inability attract new customers

Increase staff and training programs 2 Happier customers and staff

due to better knowledgeExpensive and time consuming to

train and educate

Increasing the quality and cleanliness of the store/remodeling

1 Able to attract new customers and gain a better reputation Expensive

Strategic AlternativesInvest in Technology


Invest heavily into the Omni channel networks 1

It is the way of the future and it will keep Kmart more

competitiveExpensive and time consuming

Increase the security to protect against hacks 2 Gain customer trust Expensive

Maintain current technology 3 Stick to what you know

mentality Falling behind competitors

Alternative Selection

Increasing the quality and cleanliness of the store/remodeling

1 Able to attract new customers and gain a better reputation Expensive

Invest heavily into the Omni channel networks 1

It is the way of the future and it will keep Kmart more

competitiveExpensive and time consuming

Sell/Lease property 1 More income and reduced expenses

Losing the tradition sense of operation

Questions

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