• Andrea Lillo

Conaway begins to 'execute' at Kmart

DETROIT — With only passing references to Martha Stewart and its other lifestyle brands, Kmart focused its annual meeting instead on how the company is in the midst of restructuring itself from the inside out.

Holding its meeting in the beautifully restored Detroit Opera House, Kmart is undergoing some restoration of its own, as chairman and ceo Chuck Conaway reiterated the three strategic imperatives he's been expounding for months: World-class execution, customer-centric culture and sales and marketing opportunities.

With his first year anniversary as chairman and ceo less than two weeks away, Conaway continues to strive to create a new Kmart culture from the bottom up.

"We're fixing the core business from an infrastructure standpoint," he said.

Conaway first highlighted what has been done since he took charge a little over 350 days ago. Twenty of his 93 Play-to-Win Initiatives have been finished. Kmart's in-stock levels climbed up from 79 percent in October to 88 percent today and on-time resets have shot up from 40 percent last June to 90 percent today. And Kmart's Super Service Index scores, a measure of how many Kmart customers rate their store experience as "excellent," climbed from 40 percent to 57 percent, with the goal for 2001 set at 70 percent.

Kmart also put the spotlight on Bluelight, which has resulted in doubling market baskets and upping shopping frequency 30 percent since its inception. "Kmart needs to drive frequency," Conaway said.

It also needed to become more price competitive, he said, which resulted in phase two of Bluelight, called Bluelight Always. Since May 6, the new program has offered everyday low prices on 4,000 everyday products. Kmart was previously priced seven percent higher on commodity items than its competitors, he said, but now it's only one to two percent. Kmart's American Fare brand is also now more competitive on opening price points as well, and item movements have increased 15 percent.

With in-stocks today at 88 percent — Conaway considers "world class" achievement to be in the low 90s — Kmart instituted its Blue Dot program, where sales associates use remote maintenance units (RMUs) to check whether an item is in inventory, and if not, to reorder it on the spot. Associates can also use the RMU to scan customers' shopping baskets and give them a card with the product information on it, which the customers then bring up to the register to pay. This will cut the waiting time in register lines, he said.

The discounter is also testing 110 self-checkout registers in 45 stores, he said, adding that 20 percent of transactions in those stores are going through self checkout.

This is on target with what Kmart should be to the customer, said Conaway: The authority for mom and the kids. The core customer's two most emotional purchases are ones dealing with their homes and their kids, he said. With its Martha Stewart Everyday, customers have "their own personal interior designer," a number one brand, he said. Kmart's exclusive license with Sesame Street for toddler apparel, and the new Disney license for older kids' apparel, make the store a source for kids' things as well.

Conaway's five steps to transforming Kmart include, in order of completion, building a belief system, improving execution, improving assortment, magnifying and enhancing brands; and converting traditional stores to supercenters. Forty-three percent of the current store base — or 900 stores — sit on pads large enough to accommodate a supercenter conversion, he said.

Kmart as also began an incentive program for employees, 200,000 of whom will receive bonus checks this quarter. "That's how you drive culture," he said.

Already Kmart's 2001 stock is almost up 98 percent, he said, and was at a 52-week high of $11.15 on May 11, which is in sharp contrast to the flat stocks of its largest competitors.

Though he did say that 2001 would be profitable for Kmart, the second and third quarters will be "where we do heavy lifting." Many stores will be disrupted as new food and consumer electronics departments will be put into place an front-ends reworked. The company will open only 10 new net stores will open this year. "You earn the right to grow, you don't just grow."

He added, "The economy is clearing slowing, but it's a great opportunity to grab market share as people look for great value."

As aggressive as the discounter has been over the last year, however, Conaway recognized that a lot more needs to be done. "We're in the first inning of a nine-inning game," he said. "We have a long way to go."

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