Conaway implements Kmart culture shock
June 11, 2001,
Within the past year, Kmart has seen sweeping changes within its organization, from new personnel to an emphasis on improving its execution, uprooting the old Kmart culture and cultivating a brand new one.
Of the 40 corporate officers in the company, 31 are new to their positions and 16 are new to the company in the last six months.
With his operations background apparent from the start and his determination to right the retailer, Conaway — who insists people call him "Chuck" and not "chairman" or "Mr. Conaway" — set an aggressive timeframe of 730 days last August 10th to get Kmart "fixed and positioned to fully compete in the marketplace."
And there were plenty of things that needed fixing. Almost 15,000 trailers with excess merchandise sat in Kmart parking lots. Resets were at 40 percent a year ago. In-stock levels were at 79 percent in October. And customers were not happy with the retailer: Kmart's Super Service Index (SSI) scores, a measure of how customers rate Kmart, only hit 40 percent.
Conaway is striving to make Kmart the retailer of choice for moms, and has worked to drive five core beliefs into company associates: customers rule, teams work, diversity enriches, change strengthens and performance drives. He also has talked passionately of his three strategic imperatives: achieving world-class execution, creating a customer-centric culture, and pursuing sales and marketing opportunities.
Now the trailers are history, and Kmart's discontinued inventory decreased 7 percent during the year due to better store execution. Inventory turns increased 9.5 percent in 2000, to 3.80 from 3.47 in 1999, and the average in-store inventory decreased 6.7 percent from last year to approximately $3.1 million across all geographic divisions. In-stocks are at 88 percent now, and resets at 90 percent.
Customers have certainly noticed the changes, giving Kmart an SSI score of 57 percent, closing in on Conaway's goal of 70 percent.
Domestics also recently stepped up as Martha Stewart Everyday bowed its Pima cotton bedding and bath line, which included 230- and 250-count sheets, in its top tier line, now called the 5-Star bed and bath program (previously it was the Silver Label).
Bluelight.com, of which Kmart owns 60 percent, also launched last year, quickly becoming a popular Internet destination. It has Kmart brands, like Martha Stewart Everyday and Sesame Street, as well as more atypical Kmart products, like projection screen TVs and Waterford crystal. Kiosks in 1,200 Kmarts nationwide allow customers to surf the website in the store.
Kmart's year of "massive transformation" took in $37.0 billion in total net sales, a 3.1 percent increase over 1999, with same-store sales increasing 1.1 percent. U.S. Kmart store sales per comparable selling square foot is now at $236, a 1.3 percent increase over 1999.
And though the retailer opened 16 new Kmart stores and one Supercenter, it closed 77 Kmart stores and 6 Supercenters, for a total of 2,105 U.S. locations. Conaway only expected to open 10 new stores this year.
But Conaway's far from done. "We're in the first inning of a nine-inning game," he said at Kmart's annual shareholder meeting last month.
Though this year will be one of "heavy lifting," it's already seen some positive initiatives. The Bluelight Special, the well-known marketing strategy that was discontinued in the early '90s and brought the nation the familiar phrase, "Attention, Kmart shoppers," has made a comeback at all locations. Earlier last month, the Bluelight Always program has been implemented, guaranteeing everyday low prices on 4,000 items.
Kmart is also beginning to use remote maintenance units (RMUs), so employees can check whether an item is in stock or not, and if not, reorder it right on the spot. Customers are not the only ones receiving benefits, as Conaway instituted an incentive program for employees, of which 200,000 are already to receive bonus checks.
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