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May the Best Brand Win: Wal-Mart vs. Kmart

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The discount-retail also-ran.

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What do Kmart and the West African Black Rhinoceros have in common?

Well, you just don't see as many as you used to. Keep in mind, the Black Rhino, which once dominated the savannah of central Africa, had pretty tough skin. But rhinos just weren't built to sustain a full-on assault from poachers. In the end, they disappeared.

That's pretty much what happened to Kmart. What was once the second largest retailer in the US failed to adapt to a full-on assault from both Wal-Mart (WMT) and Target (TGT). In 2002, Kmart, the inventor of the discount-retailing space, declared bankruptcy.

Such is the lot of the weakest of the species. The causes of Kmart's decline have been speculared about in numerous business journals. Here are a few reasons that stand out:
Kmart lacked a unique brand identity

Sure, it sold a bunch of stuff - but who was it for? And what's the difference between a Kmart, a Big K and Super Kmart? Who knew?

Navigation Wal-Mart's message, on the other hand, was explicit from the get-go: "Always Low Prices." When it came to saving a few bucks, shoppers knew that Wal-Mart was the place to go.

Target, meanwhile, marketed itself as the cheap-and-chic alternative to bumptious, boorish Wal-Mart. Yes, it was a place to save - but the stuff it sold wasn't ill-made, exploitative crap. Kmart, however, never redefined its brand in response to its competition.

Kmart rejected modernization

In 1987, Kmart celebrated its twenty-fifth anniversary and boasted $24.2 billion in annual sales. But then the pesky twenty-first century came along and ruined everything. Kmart managers refused to update to automated inventory control, hugely impacting to the company's bottom line.

Eric Beder, a retail analyst, astutely observed that "you had things where the cash registers were actually older than the people running them… If one cash register went down, the entire store would have to close because all the registers went down."

Meanwhile, Wal-Mart and Target embraced automated inventory systems and modern cash registers. Both retailers now soar ahead of Kmart.

Kmart rejected improved customer service. Early Kmart shoppers knew what they were getting: cheap prices, poor customer service. For a long time, Kmart could get away with this model. But again, Target changed the game by offering cheap prices and consistently good customer service, as evidenced by its slogan: "Expect More, Pay Less."

Kmart did little to bring its customer service up to par. It even nixed its beloved "blue-light specials," in which a Kmart employee would show up in a particular section and offer an impromptu discount.

All this left customers with a bad taste in their mouths.

Kmart suffered from inconsistent management

Sebastian S. Kresge founded Kmart in 1962. Since then, the company has endured an endless influx of managers from different companies. The lack of a unified corporate culture meant that Kmart has also lacked a unique and consistent brand.

Wal-Mart and Target's management, on the other hand, have adhered consistently to their original cultures. The result: a disciplined operation with a clear message.

The lesson is clear: In business, as in life, only the strong survive. Kmart failed to adapt to the new retail environment - one that it had, ironically, helped to create.

Gone are the days of the blue light special. Instead, we're left only with the white flag of surrender.

No positions in stocks mentioned.

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