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KMART CHAOS AS CEO EJECTS LACK OF LEADERSHIP FRUSTRATES SHOPS PITCHING $175 ACCOUNT

By Published on .

Kmart Corp. started building the house before it had laid a firm foundation, and the roof caved in on Joseph Antonini last week.

In a manner typical of the way Kmart does business these days, the embattled president-CEO departed under unrelenting board pressure as the troubled retailer's $175 million ad account review was nearing an end and a new executive team was still finding its way to the men's room.

"To bring in a new advertising agency before a new CEO doesn't make any sense," said Frederick Marx, president of Marx Layne & Co., a Farmington Hills, Mich., consultancy. But then, bringing in an executive management team, as Kmart has done in the past five months, and having the CEO leave doesn't make sense either, he said.

Kmart maintained Mr. Antonini's departure won't delay the review for the estimated $175 million account. Finalists Campbell Mithun Esty, Minneapolis, and New York shops Ally & Gargano and BBDO Worldwide are scheduled to make presentations in mid-April.

At about the same time, incumbent Kmart agency Ross Roy Communications, Bloomfield Hills, Mich., is expected to make a decision on whether to merge with one of three suitors, said Peter Mills, chairman and president-CEO.

One bidder, BBDO, presumably would have an advantage in the review if it buys Ross Roy. That agency's staffers could handle day-to-day business, while BBDO develops a fresh strategic direction.

Kmart's new leader must immediately solve operations problems like inventory control and internal management conflicts while establishing a new marketing identity.

Most observers said Mr. Antonini erred by pushing high-end merchandise-for example, by emphasizing fashion clothing and bringing in the now-ubiquitous Martha Stewart.

He went further astray by diving headlong in specialty retailing, buying up stores like OfficeMax, Pace Membership Warehouse and Sports Authority.

The moves alienated many traditional, middle-to-lower-middle class, blue-collar customers, and failed to undo Kmart's chintzy image with the more trend-conscious women.

Meanwhile, competitors like Wal-Mart Stores and Dayton Hudson Corp.'s Target Stores honed their efficient inventory, merchandising and marketing practices.

Mr. Antonini's strategy might have worked if he'd had the proper management in place. But insiders say he didn't like to delegate authority and didn't like to be challenged.

It's no surprise, then that analysts are recommending the Troy, Mich.-based retailer look outside for a new CEO.

"Kmart needs someone who can show some of the old fossils the door," said Burt Flickinger III, management consultant at A.T. Kearney, New York.

Names already being floated include Michael Bozic, president-CEO of Hills Stores Co., Canton, Mass.; William Fields, exec VP-merchandising and sales at Wal-Mart; Bobby Martin, exec VP-data processing for Wal-Mart; and Jack Shewmaker, a retired Wal-Mart executive.

Outsiders hired in recent months are seen as unlikely to move up right now. They include Ronald Floto, exec VP of Super Kmart Centers and now interim chairman of the management executive committee; Charles Chinni, exec VP-merchandising; Marvin Rich, exec VP-strategic planning, finance and administration; and Ken Watson, exec VP-marketing and product development.

Most observers say Kmart is fixable, pointing to a relatively clean balance sheet and more specialty units to spin off. Further, the Super Kmart Centers, a combination of a grocery store with a regular Kmart, are a huge piece of the future for mass merchandisers.

But the problems are daunting, and they include a lack of faith on Wall Street. Since 1992, Kmart's stock price has slipped from a high of almost $28 to a low of $12.

The new CEO won't be able to ignore such financial facts of life and pronounce Kmart "fine," as Mr. Antonini did on a Detroit talk show in his first public appearance after his departure. The lack of leadership and direction turned off some agencies that initially were in the Kmart review.

N.W. Ayer & Partners, New York, dropped out because it wanted to "focus on business with more promise," said one executive. Ammirati & Puris/Lintas and Messner Vetere Berger McNamee Schmetterer/Euro RSCG also withdrew.

Before the general Kmart agency briefing, contenders made private credentials presentations. A retail industry source knowledgeable about what transpired at the Ayer credentials meeting said Mr. Antonini arrived somewhat on edge at 5 p.m., declaring he was tired and indicating it would be a short meeting unless Ayer had "any good creative to show me."

None of the agencies were supposed to show creative at the credentials presentations, but Ayer did after a brief credentials summary. It was said Mr. Watson felt upstaged by Ayer going beyond the brief; he was, after all, supposed to detail the strategy at the later all-agency briefing.

Ayer's idea was to position Kmart as "today's general store" with the tagline, "It's happening at the K today." The idea was to take Kmart back to its blue light special roots but in a contemporary way. Ayer executives refused to discuss the meeting.

Various attendees at the all-agency briefing said Kmart was short on consistency and depth. Executives from several agencies were heard muttering among themselves later-from one came the judgment "unbelievable." From another "juvenile." And yet another: "an embarrassment."

One member of the audience allowed, "They did put forward a strategy. That insight was that `We want people already shopping at Kmart to come more often.' As opposed to saying we want to get new consumers."

Also, Kmart let it drop that the winning creative would be tried out in controlled test markets. The snag, however, was that in the controlled test, out of stock inventory problems would be controlled. Once the campaign rolled national, such problems couldn't be as carefully controlled.

No matter who gets the account, analysts agree there's a pressing need to better define Kmart's image.

"Jaclyn Smith and Martha Stewart are credible spokespeople, but they appeal to consumers ages 35 to 55," Mr. Flickinger said. "Kmart needs to reach consumers ages 18 to 35."

"They've got to go home again," said Eastpointe turnaround manager James McTevia. "They've got to go back to giving the consumer the perception that Kmart offers value and price."

Contributing to this story: Matt Roush of Crain's Detroit Business; Pat Sloan and Raymond Serafin.

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The bottom line

Kmart's financial results for the year ended Jan. 25.

FISCAL YEAR '94 FISCAL YEAR '95

EARNINGS ($974 million) (included one-time re structuring and sales þcharges of $1.38 billion) $296 million (includes a one-time pre-tax gain of $168 million þfor sale of majority stakes þin OfficeMax and the þSports Authority)

REVENUES $36.69 billion ($32.13 billion on a com parable store basis; larger þfigure included income þfrom three subsidiaries no þlonger part of the company) $34.03 billion

Source: Company reports

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