The penalty that businesses pay when they ignore the power and value of strategic branding is generally fatal, specially when facing savvy competitors. Attention Kmart Shoppers! The bankrupt discounter is ending its 40-year presence in Houston, closing all 17 area stores and removing numerous jobs as the country wide chain sheds low-performing stores. The giant retailer, formerly among the best known in the Usa, announced this past week it would shutter another 326 stores and lay off 37,000 workers nationwide. It is a classic demonstration of a business failing to comprehend the critical necessity for competitive positioning in a highly competitive economic environment.
Kmart had the pole position. Kmart originally resonated with the marketplace. It had been unique in its own new retail category. Which had been a positive starting point in a two-step process for positioning a brand. Nevertheless they ignored the crucial step: They failed to identify themselves in the market with all the category they created. How should they did that? Again, two steps: Craft a thorough and focused communications strategy built round the category concept, and after that manage it diligently year-in and year-out.
Oh, yeah: Don’t forget to increase the bar to potential competitors by requiring that they spend millions on advertising just to go into this game. Promote the category instead of contest with the competition. Unsophisticated management becomes distracted once they see their 100% market share decline to 90%, then 80%, etc., as competitors emerge, but competitors are necessary to operate sales growth in a new category. 50% of any million dollar category is preferable to 100% of the $500,000 category.
The Blue Light Special Questions for today: How could a business selling goods cheaper than their competitors go bankrupt for lack of sales? Don’t buyers ferret out lower prices while keeping a business alive? Not if their brand sinks.
Category competition increased. It’s instructive to compare and contrast Kmart with Target and Walmart. Kmart’s ultimate failure in the market was virtually guaranteed by permitting Target and Walmart to distinguish themselves successfully with Kmart’s low-cost concept of retailing. Perhaps Kmart expected their lower prices to become enough. How wrong these were.
Retail sales success is caused by three intertwined factors: Product. Price. Location. Prices must appeal to buyers. Products has to be desirable. And store locations should be convenient. Kmart succeeded oftentimes on all 3 fronts.
The Houston Chronicle (January 15, 2003) reported how Kmart customer Bob Franchville got a new bath set from your Westheimer Kmart store for $9.95. “I was in your own home Depot earlier, plus it cost $60 there,” he stated. Kmart’s price was a fraction of a competitor’s and the store’s location is prime. But Home Depot was getting 6-times the cost for the same product.
Affordable prices, insufficient. The answer is that both Target and Walmart have built more robust brands than Kmart. Neither have less expensive costs than Kmart. And yet, despite having the cheapest prices, what time does Kmart close is not the favorite retailer among shoppers. Think it over. Most companies believe they can gain a competitive advantage by giving goods on the cheap and Kmart represents kjgvei startling, real-life case history of how wrong that strategy may be.
At this eleventh hour, the Kmart management’s prayer is always to improve cashflow, not by increasing sales but by reducing costs. If this were a game title of chess, Kmart is hearing the term “Checkmate!” looking at the competitors. Each time a company competes with no preferred brand, the sole move left is to reduce costs, close stores and abandon customers and markets. Where does that lead? The incredibly tragic ripple effect extends, unfortunately, to some legion of suppliers, manufacturers and related industries. And just how is it possible to disregard the devastation this caused with thousands upon thousands of shareholders and employees who had vested their trust in Kmart’s leadership?
The category has become forever changed. Even though Kmart emerges from bankruptcy, Target and Walmart will still be there, stronger than in the past. Their positions as category leaders are firmly established within the minds from the purchasing public. If Kmart’s means to fix tomorrow’s issue is to close more stores and surrender both customers and competitive turf, it won’t be a long time before Kmart’s Blue Light is switched off. Forever. Kmart abdicated the throne they built. Competitors could not have overcome Kmart’s leadership position if Kmart had not given it away.