The penalty that businesses pay when they ignore the power and value of strategic branding is generally fatal, particularly when facing knowledgeable competitors. Attention Kmart Shoppers! The bankrupt discounter is ending its 40-year presence in Houston, closing all 17 area stores and eliminating hundreds of jobs as the nationwide chain sheds low-performing stores. The giant retailer, formerly one of the better known within the United states, announced this past week it would shutter another 326 stores and lay off 37,000 workers nationwide. It is a classic example of a company failing to comprehend the critical requirement for competitive positioning in a highly competitive economic environment.
Kmart had the pole position. Kmart originally resonated with the marketplace. It was unique in its own new retail category. Which was an optimistic starting point in a two-step process for positioning a brandname. Nevertheless they ignored the crucial step: They failed to identify themselves in the marketplace using the category they created. How should they have done that? Again, two steps: Craft a thorough and focused communications strategy built around the category concept, and after that manage it diligently year-in and year-out.
Oh, yeah: Don’t forget to boost the bar to potential competitors by requiring which they spend millions on advertising just to get in the video game. Promote the category rather than contest with 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 drive 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 for under their competition go bankrupt for absence of sales? Don’t buyers ferret out lower prices and keep an organization 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 allowing Target and Walmart to recognize 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 must be desirable. And store locations has to be convenient. Kmart succeeded in many cases on all three fronts.
The Houston Chronicle (January 15, 2003) reported how Kmart customer Bob Franchville got a new bath set from the Westheimer Kmart store for $9.95. “I was in your own home Depot earlier, and it cost $60 there,” he said. Kmart’s price was a fraction of a competitor’s and also the store’s location is prime. But Home Depot was getting 6-times the cost for the same product.
Lower prices, not enough. The correct answer is that both Target and Walmart have built more powerful brands than Kmart. Neither have lower prices than Kmart. But, even with the lowest prices, what time does Kmart open today will not be the preferred retailer among shoppers. Consider it. Many businesses believe they could gain a competitive advantage by offering goods at a lower price and Kmart represents kjgvei startling, real-life case background of how wrong that strategy could be.
Around this eleventh hour, the Kmart management’s prayer would be to improve cashflow, not by increasing sales but by reduction of costs. If the were a game title of chess, Kmart is hearing the word “Checkmate!” looking at the competitors. Each time a company competes without having a preferred brand, the only real move left would be to reduce costs, close stores and abandon customers and markets. Where does which lead? The incredibly tragic ripple effect extends, unfortunately, to your legion of suppliers, manufacturers and related industries. And just how is it possible to neglect the devastation this caused with a multitude of shareholders and employees who had vested their trust in Kmart’s leadership?
The course is now forever changed. Even if Kmart emerges from bankruptcy, Target and Walmart is still there, stronger than ever. Their positions as category leaders are firmly established inside the minds of the purchasing public. If Kmart’s means to fix tomorrow’s problem is to close more stores and surrender both customers and competitive turf, it won’t be well before Kmart’s Blue Light is switched off. Forever. Kmart abdicated the throne they built. Competitors could not have access to overcome Kmart’s leadership position if Kmart had not given it away.