Kmart's board is moving away from the speciality retail strategy espoused by Joseph Antonin, chairman, president and CEO. But analysts aren't counting him out yet. KMART SACRIFICING SPECIALTY LAMBS RETAILER FINALLY HEARS CHEERS INSTEAD OF BOOS

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Troubled Kmart Corp. is changing its strategy, and this time it's hearing applause from analysts and stockholders.

Bowing to pressure from stockholders, Kmart's board of directors on Aug. 16 authorized initial public stock offerings to sell majority stakes in three specialty businesses-OfficeMax, Borders-Walden bookstores and the Sports Authority.

The next day, Kmart stock climbed 50 cents to $18.13 a share amid predictions that this fall's stock offering will raise more than $1 billion.

"For the short- and intermediate-term, this was the right move for Kmart," said Frederick Marx, president of Marx Layne & Co., a Farmington Hills, Mich., consultancy.

Nearly three months ago, angry stockholders rejected a proposal to sell minority stakes in the specialty units, calling for a renewed focus on core Kmart stores. The primary focus of their anger during the June annual meeting was Joseph Antonini, Kmart's chairman, president and CEO, and the company's 1993 net loss of $974 million. Specialty retail is an enterprise Mr. Antonini put high on Kmart's agenda in the late 1980s.

Mr. Marx said Mr. Antonini's specialty retail strategy was "brilliant" and would have worked if the company had enough money to renovate some of its core Kmart stores that are in poor condition and non-competitive. "Consequently, from a financial standpoint, [the specialty units] became sacrificial lambs, but that's the action that needed to be taken."

At the annual meeting, Mr. Antonini said the 1993 loss was unacceptable. "As chairman, I fully recognize this-and ultimately take responsibility for the problems and the solution," Mr. Antonini said. Improved profitability was one of his major goals.

For the first half of 1994, Kmart's net income fell 39% to $112 million. Sales rose 5.4% to $16.6 billion.

Some analysts and many stockholders have questioned whether Mr. Antonini will be around to fully implement the turnaround.

He is in charge of planning Kmart's corporate strategy and day-to-day operations, serves on several company boards and is involved heavily with trade associations.

Mr. Marx suspects Kmart's next step will be to find someone to take the day-to-day reins, leaving Mr. Antonini to develop corporate strategy, a job in which he excels.

Burt Flickinger III, management consultant at A.T. Kearney, New York, said the company is still "trying to put distance between itself and the old Kmart." He said he thinks Mr. Antonini has done a good job, but needs some new management with fresh thinking.

Kmart still must decide exactly what percentage of the units it will sell and what to do with its remaining specialty business, Builders Square, a home improvement store chain that lost $107 million last year.

At the end of 1993, the retailer sold Pace warehouse stores to Wal-Mart Stores, owner of Sam's Warehouse Club stores, and the Payless drugstore chain to Leonard Green & Partners, operator of Thrifty Drug Stores.

Just last month, Kmart sold its stake in Coles Myer, Australia's largest retailer, for nearly $1 billion.

With sales of $34.2 billion last year, Kmart was the No. 2 U.S. retail company behind Wal-Mart, the Bentonville, Ark.-based retail giant that had more than $48 billion in sales last year. Sears, Roebuck & Co. and Dayton Hudson Corp., parent company of the mass merchandise Target Stores, were third and fourth, respectively.

Advertising Age estimates Kmart's total ad spending was $558.2 million for 1993. Kmart spent $126 million in newspapers and about $109 million on TV. In comparison, Wal-Mart's spending was estimated to be $251.9 million, about $85 million on TV and $9 million in newspapers.

In the market, Wal-Mart is positioned as the value-price merchandiser while Target is more trendy and appeals to women and children. Kmart, in a broad sense, is trying to be both by carrying trendy name brand merchandise at a value price.

Kmart also plans to launch a new advertising campaign this fall from Ross Roy Communications, Bloomfield Hills, Mich. The current tagline is "The quality you need; the low price you want."

There are no plans to again use the "Is this a great place, or what?" theme employed in its Winter Olympics ads. Top Kmart executives said it gave consumers the opportunity to say, "No, it's not."

In the past, an aging store base and a slow adoption of new technology such as scanners have hurt Kmart's efforts to maintain competitive prices and properly stock store shelves.

The future looks brighter. Brian Kardon, director of Braxton Associates, a Boston consultancy, said, "Kmart could be the best of all worlds." He said the company can reduce prices and supply good brands.

A big part of Kmart's marketing strategy is to renovate its 2,300-plus core discount stores as well as adding new stores and Kmart Super Centers.

By the end of 1993, 1,321 stores had been renovated and the project is expected to be completed by the end of 1996. Kmart says the new-look stores are outperforming older units by a considerable margin.

Kmart also is giving its Super Centers a big push. More than 50 Super Centers, grocery stores combined with typical Kmart merchandise that are open 24-hours, will be completed by the end of 1994. The first Super Center opened in Medina, Ohio, in 1991.

"Kmart has the best super centers in the marketplace," said Mr. Flickinger. Competitors include Wal-Mart and Grand Rapids, Mich.-based Meijer.

"Kmart has turned around dramatically, but it does not get enough credit from the industry because it is competing with the best retailer that ever existed-Wal-Mart," said Mr. Flickinger.

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