It seems impossible to believe now, but Sam Walton once had Kmart envy.

The legendary founder of what is now earth's largest retailer was so envious of his competitor that he would tour its stores, openly gushing. "Kmart was his example of how to do everything right," said longtime retail consultant Howard Davidowitz, who remembers visiting Kmarts with Mr. Walton more than three decades ago.  "He would grab me by the shoulder, we would go into a Kmart store and he would say ... "If only we could do something like this.' Kmart was the king of the hill."

How the mighty have fallen. Today the creator of the Blue Light Special is on red alert, shuttering dozens of stores and fighting for its life in the chain-discount category it helped create 50 years ago, when the first Kmart opened in suburban Detroit.

How did it happen, and can Kmart get back on its feet?

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Analysts point to a series of missteps that date back years, from a failure to upgrade stores to a lack of clear positioning in a market dominated by Target , Walmart and upstart dollar stores. And even as parent company Sears Holdings Corp.plots a comeback, prognosticators remain pessimistic.

"They really are a slow-motion train wreck," said Sid Doolittle, a former retail executive and retired founder of McMillanDoolitte retail consulting firm in Chicago. "Long term, retailers have to have a reason for existence that customers love. What do you love about Kmart?" he said. "There's nothing really."

Another low point came late last year when Sears Holdings announced plans to close 100 to 120 Kmarts and Sears in the face of continuing sales declines at both chains. At Kmart, same-store store sales fell 2.7% in the fourth quarter, ended Jan. 28, and 1.4% for the full fiscal year, the company recently reported. To date, Sears Holdings has marked more than 50 Kmart stores for closure. (In total, the company operates more than 1,300 Kmarts.)

Sears Holdings declined to answer questions for this story. A spokeswoman would only say that Kmart would be announcing a new strategy soon. The chain's marketing remains in flux after Chief Marketing Officer Mark Snyder departed late last year. Its agency of record is DraftFCB, Chicago, which handles branding campaigns such as "Kmart Smart," meant to position the retailer as helping shoppers make smart decisions. But as of late, advertising has been less about branding and more about pushing sales and a layaway program.

That's a tough message in a crowded field, and one that would seem ready for an overhaul. Target 's pitch is "better experience but still good price and Walmart is rock-bottom price," said Paul Swinand, who covers Sears Holdings for Morningstar. Kmart, on the other hand, "[hasn't] had a clear brand position," he said. Sears Holdings spent $215 million in measured media on Kmart last year, compared with $221 million in 2010, according to Kantar Media. Walmart had $622 million in measured media spending in 2011, falling from $873 million the year before, while Target spent nearly $683 million in 2011, vs. $639 million in 2010, according to Kantar.

Analysts suggested that one way out would be to focus on Kmart's core base of low-income Hispanic consumers in urban areas. Indeed, Kmart has recently put a growing emphasis on multicultural marketing, including partnering with Univision on a Spanish-language game show set inside a Kmart. Last year the retailer launched general-market and Spanish-language ads for its Sofia Vergara collection featuring the Colombian actress. Minneapolis-based agency Peterson Milla Hooks, which used to work with Target , was appointed last spring to handle Kmart's apparel and home business.

While some urban shoppers are lured to suburban Walmarts for cheap prices, Kmart's advantage is that it has more stores closer to where this population lives in cities, analysts said. In other words, the one-time king of discounters might evolve into a niche player, if it hasn't already. "They really have become an ethnic discount store, and that could be a successful strategy," said Britt Beemer, chairman of America's Research Group, a consumer-behavior research and strategic-consulting firm that focuses on retail. "They are trying to build a niche in an area where they don't have to be as low [priced] as Walmart because they aren't directly competing with Walmart." But, Mr. Beemer added, "it's only going to survive until Walmart gets in there and kills you."

Walmart is already moving in with smaller stores such as the "Walmart Express" format being tested in urban areas. At the same time, Kmart is getting new competition from dollar-store chains, which are expanding aggressively.

It was not supposed to be this way. Only a few years ago, Kmart was talking about growth -- not contraction --with its 2005 acquisition of Sears to create Sears Holdings. Spearheaded by billionaire hedge-fund manager Edward Lampert, the merger was supposed to revive both chains in part through cross-marketing of their respective brands. Kmart, for instance, began selling Sears' Craftsman and Kenmore brands. The merger got off to a rough start, though, when Sears Holdings quickly backtracked on a move to convert some freestanding Kmart stores into a new format called Sears Essentials after the concept failed to resonate with shoppers.

Meanwhile, Kmart stores "really lost out in the Sears combination by being ignored primarily," Mr. Doolittle said. While shoppers could buy Kenmore at Kmart, "it's pretty hard for somebody to get excited about buying a washing machine at Kmart," he added. While the new items drove some traffic, it was a "drop in the bucket compared with the big picture." Overall, Sears Holdings has not produced revenue growth in six consecutive years after the merger, Morningstar noted in a recent report.

In reality, Kmart's problems began decades before the Sears union. Analysts point to the mid-1980s and early 1990s, when the retailer went on an acquisition spree, buying chains such as Walden Book Co., OfficeMax and Borders. "They got totally off track," Mr. Davidowitz said. "They acquired a whole bunch of different businesses." As a result, "they lost focus on their business, and they let somebody like Walmart take over their space."

Kmart had shed the acquisitions by the mid 1990s and gained some momentum with several marketing and merchandizing innovations under then-CEO Floyd Hall. In 1997, for instance, the retailer grew its relationship with Martha Stewart, launching a line of bed, bath and paint products in her name, which marked the first strategic alliance between Ms. Stewart and a major marketer. (She left Kmart in 2009.) The retailer also unveiled an exclusive line of "Sesame Street "- branded clothing for newborns, infants and toddlers. By 1998, the company was reporting increased store visits and more spending per visit, according to an Ad Age story at the time heralding the company's "turnaround."

But the reversal was short-lived. Struggling to find its place between low-price leader Walmart and cheap chic Target , Kmart filed for bankruptcy in 2002, while closing 283 stores. Mr. Lampert, known as a reclusive dealmaker, brought Kmart out of bankruptcy in 2003, emerging as chairman and lead shareholder. His tenure has been marked by cost-cutting and criticized by some for a failure to make store upgrades. "Their stores just look tired," said Bonnie Knutson, a marketing professor at Michigan State University.

Mr. Lampert outlined his philosophy in a 2005 letter to shareholders recently cited by The New York Times, saying he would spend when investment produced "real bottom-line benefits" but "it would be a mistake to plow money into capital expenditures merely because that is the "accepted practice.'"

Is that Kmart smart?