On the brink? Kmart still struggles to find its way out of the darkness

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Kmart Corp., six months into its Chapter 11 bankruptcy filing, is still shopping for a marketing miracle to prevent it from succumbing to the extreme Blue Light Special: liquidation.

In a search for a niche between low-price mammoth Wal-Mart Stores and Target Corp.'s cheap chic Target, Kmart has hired Omnicom Group's Arnell Group, New York, to work on what a Kmart spokesman called "strategic store initiatives." Arnell handles advertising for Kmart's Martha Stewart collections.

An individual familiar with the Arnell project said it involves a new store concept, revamping everything from fixtures to shopping bags. It's not clear what that would cost or how Kmart, with 1,800 stores, would pay for it. Kmart declined to discuss future capital improvements.

At the same time, Arnell sibling TBWA/Chiat/Day, New York, is continuing the "Stuff of Life" campaign, with back-to-school efforts to center on launching the Joe Boxer line, featured starting in the July 28 newspaper circular. The Kmart spokesman said the retailer is getting "an excellent response" to its ads. "We feel the advertising is doing its job," he said in an e-mail.


Kmart is the only one of the top three discount stores failing to thrive. "Sales are not showing improvement, and the profit picture is deteriorating," said Kurt Barnard, president, Barnard's Retail Trend Report.

Brand guru Clay Timon, chairman-CEO of WPP Group's Landor Associates, San Francisco, cited impending atrophy. "If they don't emerge from bankruptcy in six to nine months, they could disappear," he said. The retailer now expects to emerge from bankruptcy after 2003.

Howard Davidowitz, chairman, Davidowitz & Associates, New York, a national retail consultancy, lists Kmart's only key marketing asset as one with liabilities. "The only reason they're in the game is because of Martha [Stewart]," said Mr. Davidowitz. Ms. Stewart's image has taken a hit over whether she had inside information when she sold stock in drugmaker ImClone Systems. She has denied any wrongdoing.

Like other retail experts, Mr. Davidowitz said Kmart may come out of bankruptcy, only to collapse again as did Ames Department Stores. "I don't think Kmart will exist in five years," he said.

Kmart has been making some marketing moves recently, promoting Barbara Firment, 50, to senior VP-advertising, sales and in-store presentation. She reports to Chairman-CEO James B. Adamson. Kmart's spokesman said Steve Feuling, senior VP-marketing, continues in his post, with TBWA/Chiat/Day reporting to him on national broadcast, print and outdoor advertising.

One executive involved in Kmart marketing said the retailer has centered efforts on a repositioning of the Kmart brand. "This is not the time for incremental changes," he said, adding the team is trying to figure out "what business we are in."

But even if the new look and marketing efforts could restage the discounter, Kmart still must resolve costly distribution and inventory management challenges.

Retail consultant Burt Flickinger said Wal-Mart made a "very conscious decision to take down prices $10 billion for three consecutive years to accelerate sales growth, which gives it greater operating leverage." Wal-Mart price cutting, he said, "makes the degree of difficulty for a Kmart comeback even more acute." Kmart's back-to-school and holiday sales will tell a lot about its ultimate fate, he added.


Helen Bulwik, a principal at retail consultant Seagate International, Oakland, Calif., calls the Kmart's "Stuff of Life" campaign "great" but said it poses the risk of backfiring. "Advertising can be your worst enemy," she said. "If customers come in and they don't find anything to buy, you've lost that customer."

Another executive familiar with Kmart marketing said he believes the brand will survive, but the retailer may have to "close more stores and drop more people."

Others aren't sure. "The name remains a strong pull, and it's hard to imagine they would be gone," said Ellis Verdi, president of New York shop DeVito/Verdi. But discount store density is reaching saturation, he said. "There's no room for three anymore."

Maybe so, but in the interim, retail guru Mr. Barnard said he expects "every lever in heaven and hell will be applied to make sure the company will survive."

And if they fail, Kmart has the option to sell out. Among those possibly interested, Mr. Barnard said, might be Carrefour. The Paris-based retailer wistfully has been looking at the U.S. for expansion since it was burned in an experiment in the U.S. in the late 1980s with a 220,000 square-foot Hypermarket USA so big that clerks raced about on roller skates.

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