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October 3, 2024
What’s the Deal With Kmart?
The once nationally recognized iconic American company Kmart is finally closing its last store in the United States — sort of. But there won’t be any more blue-light specials.
Scripps News reports that the last full-sized Kmart remaining in the continental U.S. is set to close on Oct. 20, according to a store employee. The location has already started its clearance sales, which were marked down by 40% as of Sept. 22.
This Kmart, located in Bridgehampton, New York, is the final full-sized store on the mainland. However, three Kmart locations continue to operate in the British Virgin Islands, along with another in Guam. Additionally, there is a smaller Kmart still open in Florida — about the size of a CVS, compared to the closing store’s nearly 90,000 square feet.
Meanwhile, Kmart remains a significant retailer in Australia and New Zealand, with over 300 stores serving millions of customers annually, according to Kmart Australia’s official website.
In the U.S., it’s been a different story altogether.
In an effort to revive both Kmart and Sears, hedge fund executive Edward Lampert merged the two retailers nearly two decades ago, vowing to restore them to their former prominence, as reported by The Associated Press. However, the 2008 recession, along with the growing influence of Amazon, hindered those plans.
At the time of the 2005 merger, Kmart operated around 1,400 stores and Sears had almost 900 full-line U.S. locations, per CNN. The parent company of the two organizations, Sears Holdings Corporation, then filed for Chapter 11 in 2018. By the time it emerged from bankruptcy, there were 231 Sears and 191 Kmart stores remaining. Today, only a small number of Sears stores still operate.
Before being merged with Sears, Walmart’s low prices and Target’s unique products proved too much for Kmart, and the company was forced to file for Chapter 11 bankruptcy protection at the beginning of 2002. Hundreds of store closings followed, and for a retailer that once boasted over 2,000 stores in the U.S., this became a historic moment for such a large North American retailer.
A particularly critical take on Kmart’s trajectory comes from Startup Stumbles, which attributes the retailer’s decline to strategic missteps. Writer Keith Donovan’s analysis points out that a “special strategy group” in the 1970s led Kmart away from its core merchandising business, stalling growth through the ’80s and ’90s. “CEO Charles Conaway’s subsequent fraud led to a Chapter 11 bankruptcy filing in 2002, followed by a second filing in 2018 due to Edward Lampert’s greed,” he stated.
Additionally, in 2002, GPN highlighted Kmart’s struggle to find its place between Walmart and Target, calling it “the discounter in the muddle.” Walmart thrived as a price leader, while Target moved upmarket, focusing on trend-forward, affordable fashion — creating a niche that left Kmart adrift.
GPN also described some other issues it had at the time, such as how Kmart implemented quick fixes, including diversifying into non-core businesses like Borders, The Sports Authority, and Builder’s Square, and when “they weren’t able to sustain or grow these chains profitably,” Kmart sold them at a loss. On top of that, the company neglected essential technology investments for inventory and supply chain management, hindering customer satisfaction, and lacked a clear customer demographic focus, failing to address lower-income markets. Continuous management changes and high operating costs also contributed to ongoing profitability issues, leading to bankruptcy.
“Kmart was part of America. Everybody went to Kmart, whether you liked it or not. They had everything. You had toys. You had sporting goods. You had candy. You had stationery. It was something for everybody. This was almost as much of a social visit as it was a shopping visit. You could spend hours here. And these just dotted the American landscape over the years.”
Michael Lisicky, a Baltimore-based U.S. retail history author, via The Christian Science Monitor
As far as Kmart making a comeback, it seems highly unlikely at this point, even as videos about Kmart’s revival see a steady stream on social media platforms like TikTok.
In the aftermath of the New York Kmart’s closing, Greater Long Island conducted a poll asking locals what should replace the closed store. The winner of the poll was Target, with 49% of the votes, while Walmart and Costco rounded out the top three at 16% and 15%, respectively. The outlet noted that the closest Target to the Hamptons is currently around 23 miles away.
Discussion Questions
What lessons can the retail industry learn from Kmart’s decline about maintaining a cohesive brand identity and effectively targeting customer demographics?
In a market dominated by Walmart and Target, how can struggling retailers carve out a niche and avoid the pitfalls Kmart encountered?
How can modern retailers recreate Kmart’s sense of community and connection in today’s increasingly digital shopping landscape?
Poll
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Kai Clarke
CEO, President- American Retail Consultants
David Slavick
Co-Founder & Partner, Ascendant Loyalty
Warren Shoulberg
Senior Contributor, The Robin Report
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Kmart isn’t completely dead because there is still an online operation and a very small number of stores – most notably in unincorporated US territories where competition is sparse. However, it is basically a walking dead retailer: a hollow shell of what it used to be. It is of no significance in retail. That’s pretty astonishing as it was once one of the largest forces in the sector. It serves now as a great lesson for what can happen if a retail business isn’t run with the consumer in mind. From the decision to over-expand into non-retail businesses, to ignoring the rise of Walmart, to failing to invest in technology, Kmart made all the wrong moves. Its takeover of Sears was the final nail in the coffin. Its later days were spent as a real estate plaything and as a shabby, down-at-heel store.
And it’s also worth pointing out that the Australian Kmart is completely separate from the US Kmart and has been since 1978. It was originally founded as a joint venture between Australian retailer Coles and SS Kresge, which founded Kmart in the US. But SS Kresge exchanged its stake for shares in Coles in 1978. It’s now a subsidiary of Wesfarmers which also owns the Australian Target chain and DIY chain Bunnings.
If there’s anything I’d like to correct – dispute? – from this story it’s this: However, the 2008 recession, along with the growing influence of Amazon, hindered those plans. I’m with the school that thinks there’s zero reason to believe that reviving K-Mart/Sears was ever Lampert’s goal (indeed the only thing less beliveable was that he was somehow well equipped to do so). As for the bigger picture: yes, it’s sad – kind of (the list of dead retailers I’ll miss more is depressingly long) – and yes, the factors cited no dobut contributed to its demise; but a lot of them are case specific, rather than offering general “lessons”, other than the main one: you’re never too big to screw up.
Well said Craig! The list of dead retailers is tuly a mile long! There are not many that I miss. I live in western PA so I MISS Kaufmnann’s ( May Co. had some really nice private brands) (Thank you macy’s) I Also will —— ALWAYS and FOREVER——– MISS ——- MARSHALL FIELD’S !!!! (Again — thank you macy’s)
Thanks William. The May Co – and Pittsburgh – actually offers a small bit of relevance to the K-Mart story: they first entered the market in 1912 when they purchased Boggs and Buhl; it was a poor fit – the latter was an upscale retailer – and the marriage floundered. But the mistake was soon realized, the original ownership returned, and both parties went on to long futures (tho obviously May’s was quite a bit longer than BB) Lesson learned: fail quickly and move on.
Customer first. This is the big lesson from K-Mart’s failure. They did not listen to their customers, and as their customers needs changed, K-mart did not reflect those changes in the way that they do business. Like the dinosaurs, it did not adapt, so K-Mart simply perished.
Yes, they were passed up by customers and quick. Slow to move to e-commerce, and slow to upgrade their assortment, they got left behind. Even with Martha Stewart.
Two things:
I’m sure the 2008 recession didn’t help Kmart – Sears, but I also believe the business was doomed before it started.
I worked at Sears Holding Management and built the Shop Your Way Rewards program across all BUs teaming with brilliant people. HR hired awesome, dedicated people. The problem in a nutshell is NOT that Sears, Kmart, Sears Automotive, Hardware didn’t listen to its customers. It was that ESL didn’t listen to his people. He hated the concept of physical store, did not invest in the in-store shopping experience (except for Hardware) and loved e-commerce (rightfully so). He turned against any investment in the in-store shopping experience, refused to pay his best floor salespeople in hard goods and the rest is history. We signed up 150,000,000+ members. It was the driving force for the business and we could not have done it without brilliant marketers and more. So put the blame somewhere it was not the recession. It had much to do with a lack of commitment and the fact that Sears stores at least were at the “old”/dead end of the mall and so traffic was weak vs. heading over to Nordstrom or Macy’s. Kmart met the needs of its under served population. Target and Walmart were just better at it.
Many years ago, when KMart was flourishing, if you were a vendor trying to do business with them you were made to wait in a lobby with all the other vendors, then at some point when your appointment deigned to come down for the meeting you were shuffled off to a very small conference room on the first floor that was designed to make you uncomfortable.
Any business that treats potential business partners like criminals does not have a culture that works in the long term.
My vignette could be ignored if it were not for KMart leadership ignoring the shopping experience which became increasingly worse, leading to the downfall of this retailer. Yes they are still technically open, however this business has been irrelevant for a while. Put a fork in it.
The only lifeline for Kmart is their global presence, but that, alone, will not be a long-term plan for growth and success. I do like the alignment of Sears with Kmart and would recommend making Sears the dominant player. Nothing hurt my retail soul more than seeing Sears decline. They were a pioneer in the industry with the first catalog, private labels, credit services/card, etc. They owned most of their real estate which sustained them long after they had a right to compete. That said, I am not as optimistic about the opportunities for Kmart to expand/come back. A return to the American General Store at scale would be the lane to take. Bring back the soda counters, crafts, appliances, candy counters and family necessities. Consumers are looking for engaging brick and mortar and Sears/Kmart need to find a place beyond lowest prices.
Remember the line from “Rain Man” way back in the late 1980’s? “Kmart sucks” became a catchphrase because people recognized its truth long before Walmart and Target turned into national powerhouses. Nothing about the Kmart brand improved by the time Lampert merged it with another faded brand, Sears.
So the company didn’t fall victim to the recession of 2008-2009 but to its own mistakes. Putting two weak retail brands together in order to achieve some sort of synergy is a “tale as old as time” and almost always has the same outcome.
Let’s not ever forget how this happened. It was one person, Eddie Lampert, who destroyed this company — Sears too — in his ongoing lust for money and the misguided and some would say delusional belief that he knew how to run a retail business. Kmart could have been saved any number of times with the right management, capital investment and vision. Fast Eddie brought none of that.
And make no mistake: we have not seen the last of the Kmart brand. Somebody will buy the name in Lampert’s last asset sale deal and run it online, maybe even as a dollar store format. Good retail nameplates don’t die…sometimes they don’t even fade away.
This story is not just about retailers and their relationship with customers and the dynamics of the competitive market. It’s also about a retailer and the competition between its retail performance and the potential performance of its own real estate. Macy’s still faces that internal competition, but is also shedding some of the holdings that give it that kind of financial exposure. Owning the real estate used to provide a great foundation to the balance sheet. But in an over-store’d environment, it puts the retail business under an even more intense microscope.
As a vendor, adviser, and outside role player in Kmart’s early-on store-brands transformation, I witnessed and experienced the peaks, valleys, and strategic mistakes that became the norm.
Frankly, there were too many bad actors at Kmart, mostly at the top, who came aboard for the wrong reasons.
Kmart wasn’t hurt by external issues. Walmart and Target, among others, experienced tremendous growth, development, and success during this time period.
In addition to Sam’s brilliant business model, smart real estate decisions, and more, Walmart’s success was a result of his vision.
Walmart’s CEOs in the years following Sam’s death were excellent, and surrounded themselves with others who fully understood, fully executed, and further advanced its successful culture and model. Kmart did not embrace new technologies as Walmart and Target did.
During this time, Target reinvented itself by elevating its target market, consumer appeal, and points of differentiation, while Kmart, along with its revolving cast of characters, kept finding new ways to trip, stumble, and fall.
As a human element, I should mention that early on in my CPG career, Kmart was by far and away the dominant player. However, unlike Walmart, which became known for its character, consistency, and positive working relationships, Kmart was just “big.”
Many suppliers viewed it as a big bully. By the time Kmart’s attitude, relationships, and business model began to decline, it was too late for them to change.
FWIW, there are 2 of them on St Croix in the US Virgin Islands. That was the only place to get a lot of things. Even those stores, which had an interesting assortment pre-Eddie, are not what they used to be.
You need a “back in the day” option for voting. And that would be 20+yrs for me. I didn’t know there were any stores left.
Eddie Lampert “owned” Lands’ End when I was there. He SO did not get retail. He’s what made me understand vertical differences and the heart that is so a part of our industry. He destroyed brands with a finance first mindset.
Kmart lost their way by trying to compete with both Walmart and Target, instead of finding their own niche. Instead of excelling in one area, they became “the discounter in the middle” with no unique value. Kmart’s failure to invest in technology and supply chain efficiency also played a huge role.
To avoid similar mistakes, struggling retailers need to build a solid foundation around their strengths and connect emotionally with shoppers. In this digital age, community can still be built through personalized experiences, loyalty programs, and engaging in meaningful ways both online and in-store.