Sam McKeown ID: 216044078
A few months ago I found myself in a Kmart store for the first time….ever..
And what did I think? Wow, what a great store – I was back within the week for more! So, had Kmart always been like this and I’d somehow missed it?
The dark years…
In the mid 2000’s Kmart Australia was struggling, realistically it was almost dead in the water. It’s main competitors were Woolworth’s Big W, and Target (owned by Kmart’s own parent company Wesfarmers).
Although it was turning over $4billion a year, Kmart hadn’t made a profit in 10 years. Analysts at the time were describing it as ‘a crumbling business flirting with collapse, dyfunctional and directionless’ (How Kmart beat the odds on everyday low prices 2014) Click here for full article.
Within Westfarmer’s portfolio, and referring to the the BCG matrix for portfolio analysis (Iacobucci 2014, p.213), Target was it’s shining star with a high market share in a high growth market. Kmart however was barely in the picture, and by definition in this strategic framework tool, it was a mere ‘question mark’ – a brand not doing well in a market that was.
And then came the light…
In 2008 a new chief executive was appointed, Guy Russo, and a major restructure and re-branding process began. The reinvention was swift, Russo took an overly complex business model with no clear strategy, a confusing price structure, and far too many products and turned it into a goldmine. From zero profit, to first half earnings in 2016 of $319 million (Mortimer 2016) Click here for full article.
So how did he do it?
A three stage plan: discovery, renewal and growth.
Strategy is about finding the best products and services to compete in the right markets at the right time (McKean 2009, p.6), and this was his strategic plan to get Kmart back on track.
The discovery stage included an analysis of environmental factors both internal and external to Kmart, including overseas models, and planning for a complete overhaul of the Kmart business model (Roberts et al. c.2011).
Essentially at this stage Kmart was taking a long hard look at itself, understanding not only where the company stood at this point in time, but the direction it wanted to take. It was a situational analysis of the significant micro and key macro environment forces, informing a SWOT analysis. It was the beginning of strategy formulation examining the 5C’s -Company, Customer, Context, Competitors and Collaborators (Iacobucci 2013)
The renewal phase was far broader, and addresses three of the 4P’s of marketing, Product, Price and Place. Stock lines were drastically reduced, direct sourcing introduced and 62 storage facilities closed. The stores themselves were de-cluttered and over time all refitted. Operational costs were significantly reduced. The most fundamental change however was the introduction of everyday low prices (EDLP) instead of discounting cycles. Referring to Porters approach to strategy classification (Kotler & Kellar 2012, p.51) Kmart was striving for cost leadership.
Russo at this point executed his brand rejuvenation plan to ensure that Kmart successfully completed the third and final ‘growth stage‘ of his plan – during this stage we can see the final ‘P’-Promotion.
The innovative market research ongoing throughout the plan, was a collaborative effort between industry and academe, and specifically analyzed how positive feelings and emotions could drive store choice. The research discovered the key driver for people to visit discount stores was the desire to ‘live within one’s means'(Roberts et al. c.2011). Click here to read the full research article
From this research the core target market for Kmart had been identified as the main shopper in the family, generally the female (Roberts et al. c.2011). Referring back to Porters approach to strategy, Kmart now also had a ‘Focus’ on part of the market (Kotler & Kellar 2012, p.51)
A company or brand may want to be all things to all people but it just can’t (Iacobucci 2013). Segmentation is key, and Kmart had chosen to target their marketing towards women with families.
The main aim of the marketing campaign was to inspire a feeling of pride in its customers, rather than burden them with shame at having to shop at a discount store, whilst also developing a brand message that would grow store traffic (Roberts et al. c.2011).
From here the ‘1000 Mums’ campaign was launched in 2011, and Kmart’s position within the market was clear.
Did it work?
Several months after the campaign, new market research found that Kmart had indeed succeeded in eliciting the targeted emotions – such as pride – in shoppers. But did this translate into more store visits? Undoubtedly yes. Kmart’s annual visits increased by 20% during the next 2.5years, and the number of items sold by 42% (How Kmart beat the odds on everyday low prices 2014) Click here for the full article.
The 2016 first half profits of $319million speak for themselves, and market share continues to increase with competitor Big W losing ground dramatically.
Russo’s three stage strategic plan had worked. A plan such as this however is always a work in progress, as situations change, so must the plan (Iacobucci 2014, p.231). It has been eight years since Russo took the reins at Kmart, and no doubt his plans continue to evolve.
Who’s the Star now?
Kmart’s success however seems to have been at the expense of Wesfarmer’s original star brand – Target – which is expected to post an end of year loss of $50 million. Is this a cannibalisation strategy backfire for Westfarmers?
Earlier this year Guy Russo was appointed CEO of Target as well as keeping his position at Kmart. So what will be the strategy this time, how will he differentiate the brands. Will the future be as bright for Target? We’ll have to wait and see…..
How Kmart beat the odds on everyday low prices 2014, Insights – Marketing, UNSW Australia Business School, retrieved 23 July 2016 <https://www.businessthink.unsw.edu.au/Pages/How-Kmart-beat-the-odds-on-everyday-low-prices.aspx>.
Iacobucci, D 2013, Marketing Management (MM4) Student Edition, South-Western Cengage Learning, Mason.
Kotler, P, Keller, K 2012, Marketing Management 14E, Prentice Hall, New Jersey.
McKean, D 2009, Fast Track to Success – Strategy, Prentice Hall, Harlow.
Mortimer, G 2016, How Kmart ate Target: A story of retail cannibalism, ABC, retrieved 23 July 2016 <http://www.abc.net.au/news/2016-05-31/kmart-ate-target-story-retail-cannibalism/7461564>.
Roberts,K, Roberts, J, Raghavan, R, Danaher, P c2011, Respositioning Kmart: This time with Feeling, University of Queensland, retrieved 23 July 2016, <https://www.business.uq.edu.au/sites/default/files/events/files/john-roberts-abstract.pdf>