Mini Case: K-Mart*
K-Mart Corporation operated one of the more successful retail operations in the discount industry. Competing with companies like Wal-Mart, Target Stores, and many others, K-Mart continued to grow and provide substantial returns to investors. The company has over 2,150 K-Mart, Big K-Mart and Super K-Mart stores in all 50 states in the U.S., and in Puerto Rico, Guam, and the U.S. Virgin Islands. To support operations, K-Mart developed sophisticated database marketing capabilities to track 2 billion transactions annually from more than 85 million households, in order to reach customers using targeted direct mail and eventually e-mail.
The company started as a five-and-dime store in downtown Detroit in 1899. Everything in the original store cost either 5 or 10 cents, and low prices appealed to customers. Founder S. S. Kresge's success fueled expansion to 85 stores by 1912. In 1953, a new era of retailing began expanding the variety offered by Kresge stores to other goods, such as wrapping papers, ribbons, and housedresses also at discount prices. Success continued, and in 1976 the S. S. Kresge Company opened 271 K-Mart stores. In 1977, K-Mart Corporation became the official company name, and by 1987 the company had sold all the remaining Kresge stores to concentrate only on discount merchandising. During the 1980s and 1990s, K-Mart acquired several companies including Walden Book Company, Builders Square (a home improvement retailer), Pay Less Drugstores, PACE Membership Warehouse, The Sports Authority (a sporting goods retailer), Borders (a bookstore chain), and 22 percent interest in Office Max (an office supply superstore chain). By the mid-1990s, management refocused on the core discount store business and by 1997 all of these acquisitions had been sold or divested.
An aggressive expansion plan, followed by declining profitability, resulted in a full restructuring in the mid-1990s. Every task of the turnaround was based on the mission statement:
Kmart will become the discount store of choice for middle-income families with children by satisfying their routine and seasonal shopping needs as well as or better than the competition.
The stores have been redesigned to offer large assortments, big floor plans, and significantly improved shopping experiences. The new stores focused on selling name brand consumables, children's clothes, and home fashions. Organizational systems were also realigned with the mission statement. Associates are taught to put the customer first, including doing whatever is necessary to provide customer satisfaction. One element is the K-Mart Price Guarantee, empowering employees to match competitors price. Another was the redesign of return and exchange policies make it easy for customers to bring unwanted merchandise back. And the company also focused on enhancing the company website to not only include company information and press releases, but to support secure online shopping and specialty sites such as wellness tips from a certified fitness professional.
A key initiative for K-Mart is to continually improve the in-stock position. As recently as late 1994, Kmart stores were in stock less than 90 percent of the time, creating significant customer dissatisfaction. The target, and benchmark for all competitors in the industry, was an in-stock position of at least 98%. One avenue to achieve this objective was the Seasonal Merchandise Management System (SMMS). Holiday merchandise can exceed $2 billion. Running out of an item at that time of year severely impacts not only the immediate bottom line, but the company's reputation and the customer satisfaction in general. Customers who experience a stock-out on a item for a Christmas gift typically go to a competitor.
SMMS provides buyers and planners at headquarters with daily sales and inventory data. That means seasonal goods can be managed differently. Inventory and pricing decisions can be based on sales performance at the individual stores, rather than on projected trends system wide. Managers can maximize profits by keeping tabs on stores where items are selling well, and can build specific strategies for stores who need to move inventories before the season ends. Before SMMS, seasonal merchandise was managed at the corporate level, mandating chain wide markdowns when sales failed to meet projections. There was no consideration of local demand, and therefore no ability to customize sales plans for each store. Often stores where items were selling well ran out of merchandise when prices were discounted, leading to significant stock-out situations at peak season.
The system uploads sales and inventory data from each store overnight. In the morning, buyers and planners at corporate headquarters, and regional merchandising coordinators, can quickly assess the status of seasonal merchandise. Buyers and planners can view sales performance at a variety of levels such as item, department, and store or region. In addition, the system lets managers take action to meet sales targets. Items are managed end-to-end, from the decision to buy it to the stock in the store, until it is sold. That means customers experience better shopping experiences and managers can insure that their individual stores are able to meet demand at their local level.
Discussion Questions
Discuss the following questions in this online forum:
What is the strategic advantage afforded K-Mart from the SMMS system? Does that system help it compete against its competition, if so, how?
How long is the window of opportunity for K-Mart for an advantage such as that given by SMMS? That is, when do you think competitors will follow suit and implement their own SMMS?
SMMS is not an Internet application. Why not? Do you think there are significant advantages to be gained from putting it on the Web?
What other types of competitive advantages might K-Mart executives look for from IS in general?
* Adapted from Megan Santosus, "Kmart Corp.: A Seasoned Performer." CIO Magazine, January 15, 1995; CIO Magazine website https://web.archive.org/web/20010706231411/https://www.cio.com/archive/011595_mart_print.html and K-Mart press releases, October 14, 1999.
This case discusses the seasonal merchandise management system of Kmart. This seemed like an interesting case for discussing strategic advantages with information resources because, while it is not the primary information system for Kmart, it is a critical one for both cost-based advantage as well as value-creation advantage