K Mart

A) Pls note that it is important to have headings on each of the analysis. For example : a separate heading for each of the following

1) Industry Environment,

2) Competitive Environment,

3) Macro Environment

4) Future Prospect of the Industry.

B) On the e-appendices

1) 5 Porters - provide a paragraph for each of the 5 forces. The details in the paragraph to addressed the analysis to Kmart and not to provide a generalization of what 5 forces or value chains are.

2) provide pie charts for the breakdown of the revenue for each strategic group etc

Additional Information for the Project

1 The number of words must not exceed 2500. These words refer to those in the main report (not Appendices) and not inclusive of words in Figures and Tables.

2. Both in-text and a Reference list are compulsory. Format required for the referencing is Harvard Referencing Format or also known as the Author-Date Format.

3. Presentation of the report: - The report should provide sufficient information be in a clear concise format to allow top management to make an informed decision.

4. Pls ensure that the e-appendices are addressed in the report. All analysis in the e-appendices must be done. Provide headings on each of the paragraph.

Introduction

This paper describes K-Mart and its industry. It will begin with an explanation of its industry, including local and global markets, and industry structure. It will then discuss the major competitors and their strategies, then the macro environment in which K-Mart does business. It will finally deal with K-Mart's future prospects as the competitors and environment change.

The industry environment

By 2002, there were rumours of bankruptcy at K-Mart. The chains' 2,100 stores' were down, and inventory was piling up (Patsouris). Unlike Wal-Mart, K-Mart had not made a major investment in inventory management and logistics systems, which made it difficult for top management to parse profitability or to move inventory to places where demand was highest.

K-Mart's problems with cash flow in late 2001 created an inventory short-fall as the chain was unable to pay its suppliers on a reliable basis. K-Mart then filed for Chapter 11 bankruptcy, which held its creditors at bay while the company tried to develop a rescue plan.

At this dark period, a hedge-fund manager, Eddie Lampert, stepped in and bought K-Mart from the bankruptcy court for about $1 billion. With relatively little retail experience, the Street was sceptical that Lampert could create a success from the then non-competitive chain. With the subsequent acquisition of Sears, Lampert moved K-Mart's shares to Sears Holding Corporation. His original $1 billion investment is now valued at nearly $16 billion (including the value of Sears, which was bought for little cash).

The competitive environment

* Key success factors (what does it take to succeed in this industry? What can a co do to gain a competitive advantage?. What does it take just to survive in this industry?)

* Identify and profile the major strategic groups

* Analyse the information contained in the value chain appendix for each group. i.e. do some groups operate with high profit margins, or lower costs structure

* Identify and compare key strategies pursued by major players in the industry. Discuss which strategy seems to be most successful in the industry, and why?.

K-Mart failed to respond to its up-and-coming competitors, who competed with the once-innovative chain on several fronts:

- Logistics and product ordering control: Sam Walton revolutionised the big-box retail industry through his command of logistics. He was the first and most aggressive to adopt in-store computer tracking methodologies. Walton's eventual goal was to have all sales data available in real time for both the local store manager and the central headquarters in Arkansas. As we saw from K-Mart's troubles, its lack of logistics and IT infrastructure made it impossible for K-Mart to compete in the more competitive industry.

- Marketing and positioning:

o Target positioned itself in the same way as General Motors against Ford in the 1920's. It created a "low price, high quality" positioning which led customers to expect a higher quality than K-Mart

o Wal-Mart convinced consumers that its "everyday low prices" were superior to the promotion-driven sales offered by K-Mart. Since Wal-Mart offered superior product sales tracking and logistics, it was able to deliver consistently lower prices than K-Mart.

o Additional department store chains, such as JC Penney's and Kohl's, moved upscale while adopting some of Wal-Mart's and Target's logistics and promotional policies.

- Store renovation: K-Mart fell behind in its store decor. As compared to its prime competitors, K-Marts were too bright, too cluttered and too confusing.

With the acquisition of K-Mart, Lampert's company focused on updating K-Mart's image, while confounding the experts who predicted that he had bought the chain to be able to sell off its real estate assets. While he did sell some high-value real estate, he plowed back some of those profits to upgrade stores.

Lampert adopted a Wal-Mart strategy: improve logistics, keep prices low (although less promotional-orientated), and stay with the blue-collar shoppers who had not yet abandoned the retailer. He continued the branding strategy started with Martha Stewart, and courted other well-known fashion arbiters to increase brand images for soft goods amongst consumers.

The Macro Environment

In the future, the logistics and purchasing benefits that accrued to Wal-Mart and Target as pioneers will also accrue to other nationally-known retailers. The main reason is that logistics software and expertise have now diffused throughout the industry, and become a necessary element for major retailers to compete.

Consumers are purchasing more despite all forecasts to the contrary. In a country where even those classified as "poor" on average own their own house, their own car and

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