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Experts Urge Kmart to Think Small

January 15, 2003

DETROIT (AP) _ While more than 300 Kmart stores plan for their final blue light specials, smaller discount chains are eyeing their markets, and some experts are advising Kmart to radically rethink its strategy.

Kmart announced Tuesday that it would close 326 stores and eliminate 30,000 to 35,000 jobs as part of a plan to emerge from bankruptcy by the end of April.

If the bankruptcy court approves, the Troy, Mich.-based retailer will have about 1,500 stores remaining, a third fewer than when it declared bankruptcy Jan. 22, 2002. Though it closed 283 stores and cut 22,000 jobs last year, it still lost more than $2 billion.

The new cuts still leave Kmart larger than discount competitor Target Corp., which has 1,148 stores in 47 states, but just over half the size of Wal-Mart Stores Inc., with more than 2,800 U.S. stores.

Some experts said the key for Kmart’s survival now is to stop trying to compete as a mega-store in a market that’s already been cornered.

``They want to have a store like Wal-Mart because they believe that’s the only way for them to succeed,″ said Arun K. Jain, marketing professor at the University at Buffalo School of Management. ``They have to adopt a more selective strategy. ... Everybody’s going after these mega-stores.″

``Wal-Mart and Target are going to rip them up,″ he said.

Kmart gave few clues Tuesday to what its future holds but said it would file a reorganization plan next week that is expected to explain what led to the bankruptcy and details of Kmart’s management review.

Kmart could choose to close its doors forever, said Jordan Kaplan, professor of managerial science at Long Island University.

Barring that, he said, the company may want to rethink its strategy.

``Maybe they want to be a bigger player in smaller margins,″ Kaplan said. ``They could become a very small player. ... Maybe they’re going to reinvent themselves.″

Jain suggested Kmart focus on areas where it has already established itself, particularly urban areas with no Wal-Mart or Target stores, a strategy, he said, that has worked for Kmart in the past.

But Anthony Sabino, associate professor of business at St. John’s University, said, ``They’ve got to get beyond lean and mean.″

``They’ve got to get small, real small.″

Among the Kmart stores expected to close are some the chain’s largest, including an Indianapolis store converted last year into a 152,000-square-foot super center.

``They remodeled the whole thing, and put a grocery store in,″ said Wilbur Thomas, 77, of Plainfield, Ind., whose daughter works at the store where he was shopping Tuesday.

Smaller chains such as Fred’s Stores, Dollar General and Family Dollar, meanwhile, are hoping for an economic boon from the closings.

Going-out-of-business sales will initially cut into the profits of Wal-Mart and Target, and even the smaller chains, said Kurt Barnard, president of Barnard’s Retail Trend Report in Upper Montclair, N.J.

``There will be a little bloodletting ... and a little less competition,″ Barnard said. ``All of those competitors that are in the vicinity of the store that’s closing will certainly find that the market share will be wandering over to them.″

Fred’s has about 16 locations directly affected by Kmart, said Tom Burkley, senior vice president of marketing for the Memphis, Tenn.-based company.

Dollar General also could lose some competition, said Andrea Turner, spokeswoman for Dollar General, based in Goodlettsville, Tenn.

``In general terms, I would say we tend to locate our stores in areas that coincide with some of the larger retailers. So hopefully we’ll be in a position to fill the niche,″ Turner said. ``And some customers might not have much of an alternative in light of these closings.″

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