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The penalty that companies pay when they overlook the power and value of strategic branding is generally fatal, especially 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 countless jobs as the country wide chain sheds low-performing stores. The giant retailer, formerly one of the better known within the U.S., announced this past week it could shutter another 326 stores and lay off 37,000 workers nationwide. It is a classic demonstration of an organization failing to know the critical necessity for competitive positioning in a highly competitive economy.
Kmart had the pole position. Kmart originally resonated with all the marketplace. It was unique in their own new retail category. Which was an optimistic first step in a two-step process for positioning a brandname. Nevertheless they ignored the crucial step: They failed to identify themselves in the industry using the category they created. How if they did that? Again, two steps: Craft an extensive 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 increase the bar to potential competitors by requiring they spend millions on advertising just to go into the video game. Promote the category rather than contend with competition. Unsophisticated management becomes distracted when they see their 100% market share decline to 90%, then 80%, etc., as competitors emerge, but competitors are essential to get sales growth in a new category. 50% of any million dollar category is better than 100% of a $500,000 category.
The Blue Light Special Questions for today: Just how can an organization selling goods for under their competition go bankrupt for insufficient sales? Don’t buyers ferret out lower prices whilst keeping a company 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 industry was virtually guaranteed by letting Target and Walmart to recognize themselves successfully with Kmart’s low-cost concept of retailing. Perhaps Kmart expected their lower prices to be enough. How wrong these were.
Retail sales success is because of three intertwined factors: Product. Price. Location. Prices must attract buyers. Products must be desirable. And store locations must be convenient. Kmart succeeded oftentimes on all three 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, plus it cost $60 there,” he said. 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 same product.
Affordable prices, inadequate. The correct answer is that both Target and Walmart have built more robust brands than Kmart. Neither have less expensive costs than Kmart. And yet, even with the best prices, Kmart hours of operation will not be the favorite retailer among shoppers. Think about it. Many businesses believe they can acquire a competitive advantage by offering goods on the cheap and Kmart represents kjgvei startling, real-life case past of how wrong that strategy can be.
At 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 word “Checkmate!” looking at the competitors. Whenever a company competes without having a preferred brand, the only move left is to reduce costs, close stores and abandon customers and markets. Where does which lead? The incredibly tragic ripple effect extends, unfortunately, to some legion of suppliers, manufacturers and related industries. And exactly how is it possible to disregard the devastation this caused with a multitude of shareholders and employees who had vested their trust in Kmart’s leadership?
The category is currently forever changed. Even though Kmart emerges from bankruptcy, Target and Walmart will still be there, stronger than ever before. Their positions as category leaders are firmly established inside the minds in the purchasing public. If Kmart’s answer to tomorrow’s problem is to close more stores and surrender both customers and competitive turf, it won’t be long before Kmart’s Blue Light is turned 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.