The penalty that companies pay when they overlook the power and value of strategic branding is generally fatal, especially when facing experienced 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 country wide chain sheds low-performing stores. The giant retailer, formerly one of the best known within the U.S., announced this past week it would shutter another 326 stores and lay off 37,000 workers nationwide. It is a classic example of an organization failing to comprehend the critical requirement for competitive positioning in a highly competitive economy.
Kmart had the pole position. Kmart originally resonated with all the marketplace. It was unique in the own new retail category. Which was a positive first step in a two-step process for positioning a brand name. But they ignored the crucial step: They failed to identify themselves in the industry with all the category they created. How if they have done that? Again, two steps: Craft an extensive and focused communications strategy built across 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 which they spend millions on advertising just to go into the video game. Promote the category as opposed to contest with the competition. Unsophisticated management becomes distracted whenever they see their 100% market share decline to 90%, then 80%, etc., as competitors emerge, but competitors are important to drive sales growth in a new category. 50% of any million dollar category is better than 100% of any $500,000 category.
The Blue Light Special Questions for today: Just how can a company selling goods for less than their competition go bankrupt for insufficient sales? Don’t buyers ferret out affordable prices whilst keeping an organization alive? Not if their brand sinks.
Category competition increased. It’s instructive to evaluate Kmart with Target and Walmart. Kmart’s ultimate failure in the market was virtually guaranteed by permitting Target and Walmart to recognize themselves successfully with Kmart’s low-cost notion of retailing. Perhaps Kmart expected their affordable prices to get enough. How wrong these were.
Retail sales success is because of three intertwined factors: Product. Price. Location. Prices must appeal to buyers. Products should be desirable. And store locations has to be convenient. Kmart succeeded in many cases on the 3 fronts.
The Houston Chronicle (January 15, 2003) reported how Kmart customer Bob Franchville purchased a bath set from the Westheimer Kmart store for $9.95. “I used to be in your own home Depot earlier, and it cost $60 there,” he stated. Kmart’s price was a small fraction of a competitor’s as well as the store’s location is prime. But Home Depot was getting 6-times the cost for the similar product.
Affordable prices, inadequate. The answer is that both Target and Walmart have built more powerful brands than Kmart. Neither have lower prices than Kmart. But, despite the best prices, Kmart hours of operation will not be the preferred retailer among shoppers. Think about it. Most companies believe they are able to gain a competitive advantage by providing goods on the cheap and Kmart represents kjgvei startling, real-life case history of how wrong that strategy may be.
Around this eleventh hour, the Kmart management’s prayer would be to improve cashflow, not by increasing sales but by reducing costs. If the were a game of chess, Kmart is hearing the phrase “Checkmate!” looking at the competitors. Each time a company competes without a preferred brand, the only move left would be to reduce costs, close stores and abandon customers and markets. Where does that lead? The incredibly tragic ripple effect extends, unfortunately, to your legion of suppliers, manufacturers and related industries. And how is it possible to neglect the devastation this caused with thousands upon thousands of shareholders and employees who had vested their trust in Kmart’s leadership?
The course has become forever changed. Even if Kmart emerges from bankruptcy, Target and Walmart will still be there, stronger than ever. Their positions as category leaders are firmly established in the minds of the purchasing public. If Kmart’s means to fix tomorrow’s problem is to seal more stores and surrender both customers and competitive turf, it won’t be a long time before Kmart’s Blue Light is turned off. Forever. Kmart abdicated the throne they built. Competitors could not have overcome Kmart’s leadership position if Kmart had not given it away.