KMART GETS REAL AS IT MAPS ROAD TO SURVIVAL;ROSIE O'DONNELL, PENNY MARSHALL PICKED TO STAR IN HOLIDAY CAMPAIGN

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Realistic. That sums up Kmart Corp.'s new business approach.

Former President-CEO Joseph Antonini's slogans like "We're not just talking about change; we're proving it" no longer hang from banners in the lobby of corporate headquarters in Troy, Mich.

The stirring phrases have been replaced with a practical look at what Kmart must do to survive as a top discounter. The retailer is trying to stay away from over-promising and under-delivering, admitting that it has weaknesses that must be fixed.

Kmart began forming its new management team late last year. Among the new additions were Kenneth Watson, exec VP-marketing and product development; Marvin Rich, exec VP-strategic planning, finance and administration; and Charles Chinni, exec VP-merchandising. This June, Floyd Hall took over as chairman-president-CEO from Mr. Antonini, who resigned.

Soon after Mr. Watson joined Kmart in October 1994, he called an agency review. In April, Kmart chose Campbell Mithun Esty, Minneapolis, succeeding Ross Roy Communications, Bloomfield Hills, Mich.-its agency for the previous 25 years.

In accordance with its new realistic approach, Kmart has hired spokeswomen Penny Marshall and Rosie O'Donnell to headline this year's holiday campaign, slated to break in late November.

"Rosie is very credible, and the biggest thing Kmart needs is credibility," said R. Fulton Macdonald, president of International Business Development, a New York-based consultancy. "That is going in the right direction-getting credible women to vouch for Kmart without making false pretenses. She is no-nonsense and tells it like it is."

These down-to-earth spokeswomen are far different from previous Kmart endorsers such as Martha Stewart, who appeal to a more upscale crowd.

Kmart has decided to hold off on an image campaign until 1996, even though there is serious pressure from investors to improve the bottom line.

"The investment community is still skeptical about Kmart," said Mr. Macdonald. "Since the fourth quarter is where the profits are made, and Kmart has slipped as much it has, investors are basically saying that Kmart has to perform now or they are in serious doubt of whether it will be a contender at all for the future."

Even with the importance of the holidays, most analysts and consultants agree that delaying an image campaign is a smart move. Many point out that the retailer needs time to put together a comprehensive plan.

"It's smart to wait and be realistic," said Frederick Marx, president of Marx Layne & Co., a Farmington Hills, Mich. consultancy.

One consultant said that Kmart management must agree on a strategy before it can deliver an image to the consumer.

"It's smart to wait before you start spending millions of dollars behind a strategy," said Donald Stuart, partner at Cannondale Associates, Wilton, Conn. "Otherwise, you get a schizophrenic Burger King-type positioning where they are changing the advertising campaign every six to eight months."

Kmart spent $170 million on ads last year for its core Kmart stores. And most observers agree that the wrong image campaign now could turn off consumers.

"Consumers are very tough voters," said Mr. Macdonald. "If you come out with some glossy, slick, the-new-Kmart kind of campaign, and then the consumer goes into the store and doesn't find that, they are going to write off Kmart and not come back."

However, there are some who are critical of Kmart's decision to wait on an image campaign.

"Kmart is in dire need of very fast, rapid measures to bolster the confidence of consumers, employees and Wall Street," said Kurt Barnard, president of Barnard's Retail Marketing Report, Scotch Plains, N.J.

Analysts say that what the No. 2 discounter needs to look at right now are the essentials.

"The fundamental thing Kmart has to do is get back to why it exists: to deliver the lowest price possible," said Mr. Macdonald.

Along with its new realism comes more honesty in the company. "Kmart's strategy is no longer defensive, but more offensive," said Mr. Marx.

A recent example of offense was the sell-off of Kmart's 860 underperforming auto centers to Penske Corp., forming Penske Auto Center. According to Kmart, the centers had lost money last year, and the discounter felt it needed to sell them to concentrate on its core stores. Still, under the sales agreement, the centers will generate revenue for Kmart through rent and a percentage of gross sales.

Kmart also is being realistic about predicting third-quarter sales figures.

"We anticipate that the company's margins for the quarter will be affected by ongoing pressure on lower margin consumables, improved sell-through of advertised items and a continuing effort to clear older, unproductive merchandise, as well as by poor performance in Builders Square," said Mr. Hall in September. "As a result, we anticipate that Kmart's third-quarter results will be well below last year's earnings."

The next step, of course, is to hear from Kmart.

"New leadership hasn't really unveiled any major strategic thrust yet for Kmart, and most are waiting to see what that will be," said Mr. Macdonald.

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