Once the dominant discounter in the United States, Canada, Japan, Czech Republic, and Australia, Kmart has gone through a disappearing reminiscent of a teenage party at Camp Crystal Lake in the Friday the Thirteenth movie series. One-by-one, country-by-country the Kmart banner has vanished.

Analysts have long been waiting for an announcement from Chicago-based Sears Holding Company would be replaced with a different format. Many thought it was a inevitable once an attempt to developing the platform called Sears Essentials was announced. However lack of testing the concept before deploying dozens of stores nationwide prevented a proper learning curve, keeping the concept from being successful. The stores were located in former Kmart units; however experts agree they were not able to produce the same revenue as her predecessor. The stores will be transformed into the Sears Grand format which has had greater success.

The most recent blow to the Kmart name came from the land down-under. Coles Myer, which operates stores under the Kmart and Target names, in addition to their own, has announced it will drop the Kmart name over the next few months. This will remove the Kmart name from the entire southern hemisphere, leaving only the United States and Puerto Rico with Kmart outlets.

What causes an icon to fade?

There are two main reasons that the Kmart banner failed to achieve longevity. By examining these two reasons we are able to understand what we need to do to prevent our company from going the way of Kmart.

First, the chain lost sight of its reason for existence. Originally developed by the S. S. Kresge Company, the banner was to signify low prices. Founder Harry Cunningham believed that if a store could do tremendously high volume it could operate with a very small gross margin. The philosophy was highly successful until the late 1980s when Joe Antonini decided the higher gross margins were necessary to keep investors happy. At the same time, Sam Walton overcame the same need for our gross margins by shifting more dollars to import merchandise which sold for slightly less than the branded American counterparts, but cost significantly less. Antonini's move called for higher profit margins of American-made goods, which met with huge consumer resistance. A daily report created specifically to show Antonini the customer count for each day had to be dropped as executives were afraid to show him the drop in transactions as the prices were raised. Anthony seemed pleased to put a quarter of the bank every week while Sam Walton was putting a dime in the bank every day.

The second reason Kmart failed was they lost sight of those who contributed to making the company successful. It turned its back on its supplier base with upper management saying the suppliers more as adversaries than allies. Soon customers were viewed the same way. The chain dropped their satisfaction always program, no longer giving refunds unless the customer could produce a receipt. Large fines were levied against suppliers for not following policies, which were confusing and many times out of the hands of the supplier. It was nothing to charge a supplier thousands of dollars for a late delivery that was caused either by a buyer not properly documenting a change delivery date or by a distribution center they shared part of the profits generated by the vendor fines. Top executives were continually looking for ways to generate more revenue from vendor fines, even prioritizing computer programming to automatically pick up on vendor failures.

The challenge

If we are to learn from the Kmart lesson, we must continually concentrate on overcoming their two big mistakes. It is imperative that we remember 1) why we exist and 2) who makes us great.

It is said that every organization is perfectly formed to get the results they are currently getting. When those results are less than what we expect, or they are inconsistent, it is natural to look at the factors having an impact on the bottom line. However, if the statement is true the problem is not in the results it is in the way our organization is structured. Therefore it is vital for every company that wants to go from good to great to examine the two factors may Kmart missed and asked themselves if their culture supports their reason to exist and who makes them great.

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