Associated Press
DETROIT — In the 18 months that Chuck Conaway has been at the helm of Kmart Corp., he has closed unproductive stores, reintroduced the Blue Light Special and made other changes to help the discount retailer become more efficient.
But the Troy, Mich.-based retailer is still struggling to turn around its finances, and this holiday retail season is not expected to help its bottom line. The company is predicting flat to 2 percent sales gains for the season compared with last year, Kmart spokesman Steve Pagnani said.
Retail analyst Brian James with Loomis, Sayles &Co. in Boston said Kmart — and Conaway — may be running out of time.
"If they can’t change something dramatically, then their ultimate destination is oblivion," James said. "I think competitively right now there is no reason for them to exist. If they did not exist right now, no one would miss them."
He said although Conaway has made some good moves, none has improved sales and profits.
"Hopefully, the economy will improve next year so he’ll have the wind in his back and not in his face," James said.
Kmart is scheduled to release third-quarter earnings Tuesday. Wall Street analysts surveyed by First Call/Thomson Financial are predicting a loss of 27 cents a share.
Kmart sales were flat in the second quarter, though the company managed to narrow its losses to $95 million, or 19 cents a share, compared with a loss of $448 million, or 93 cents a share, in the year-earlier period.
Earlier this month, Moody’s Investors Service said it was placing the retailer’s credit rating on review for a possible downgrade, citing concerns that its debt level wouldn’t be significantly reduced soon.
Among Conaway’s initiatives: Kmart is replacing two aging distribution centers with modern facilities and will be overhauling its product-delivery software in an effort to improve the flow of goods to stores.
"You go into the store, you don’t find it once, you don’t find it twice, you don’t find it a third time, you don’t go back," said Ulysses Yannas, an analyst with Buckman, Buckman &Reid in New York.
Kmart has made some strides in this area. The company’s in-stock levels are at 87 percent, compared with 79 percent a year ago. By year-end, Conaway’s goal is 90 percent. Conaway, who was president of the CVS Corp. drugstore chain before he joined Kmart in May 2000, is considered an expert in inventory control.
Kurt Barnard, who runs the consulting firm Barnard’s Retail Trend Report in Upper Montclair, N.J., said there is no doubt that Kmart "is doing a lot of very good things internally … very necessary things."
The problem, he said, is consumers don’t know about it.
"What they need to be doing is letting the world know that this is the new Kmart, a Kmart that is built around you, the shopper," Barnard said. In carrying brands such as Martha Stewart, Disney and Sesame Street, he said Kmart has to find ways to make the consumer associate those brands with the store.
The Martha Stewart Everyday brand, which covers linens, paints and kitchenware, is Kmart’s largest volume-producing label, generating about $1 billion in sales last year.
James called Martha Stewart’s line "a really bright spot" at Kmart. In June, Kmart extended its licensing agreement for the brand, making the merchandise available at Kmart’s more than 2,100 stores until 2008, with conditional renewal until 2013.
Conaway also brought back the Blue Light Special in April. The marketing tool, first introduced in 1965 and retired in the 1990s, offers customers lowered everyday prices on more than 30,000 items.
Yannas said the promotion will cost the retailer in the short run but should help the company down the road.
"It’s a means of attracting people to the store. Those prices (on now-discounted items) weren’t competitive to something like a Wal-Mart," Yannas said. "It’s a move that they had to make."
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