Recreating Image Is Essential
Experience is a great, but unforgiving teacher, and some of the best lessons we’ll ever learn will come from witnessing other people’s mistakes.
Q. In your last column you wrote about the costs of shortsightedness in the word processing industry. Why not examine retailing? Miss your mark here and you can be out of business overnight. There are some great stories here about the consequences of not changing your corporate lifecycle fast enough.
A. You bet. The retail market severely punishes those who fail to reinvent themselves as circumstances change.
Sewell Avery, the conservative chairman of retail giant Montgomery Ward, failed to acknowledge America’s sprawl into the suburbs, and didn’t open a single new store between 1941 and 1957. The more astute leaders of Sears did just the opposite, stealing the thunder of ol’ “Monkey Ward.”
Ward’s was never able to adequately rejuvenate its lifecycle, and the 125-year-old institution ultimately filed for bankruptcy protection in 1997.
Woolworth Corp., which was founded a few years after Ward’s, suffered a similar fate. In 1997, it followed the lead of W.T. Grant, S.S. Kresge and Ben Franklin Stores, and admitted that the merchandise and prices featured by its downtown-oriented, “five-and-dime” stores couldn’t compete with aggressive discounters of up-to-date product lines, thus bringing to an end an era as well as a cycle.
Interestingly, Woolworth saw the threat of the discount phenomenon in the early 1960’s but never let its Woolco discount alternative totally sever its connection to the five-and-dime mentality.
Then, there’s the sad story of Grossman’s Inc., a century-old hardware chain. It was pushed into bankruptcy by Home Depot, a start-up that knew what kind of stores would attract customers seeking hardware and building supplies.
One of the best examples of how not to manage an enterprise cycle can be found in the annals of Kmart which, at the beginning of the 90s, was the world’s largest discount retailer. Fat and happy, Kmart enjoyed almost three decades of unmatched success, all but ignoring another retailer, Sam Walton, who had gone into business the same year Kmart did (1962).
K Mart’s oversight wasn’t physical growth and expansion. There wasn’t a well-located suburban shopping mall it didn’t like. But Wal-Mart had a different vision, and grew strong in the rural areas where competition was scarce and customers were appreciative. Kmart’s slide to a point in 1995 where it was only one-third of the size of Wal-Mart - was occasioned by its failure to burnish its product line and to operationally innovate. Its core business, the discount merchandising of family-oriented goods, was neglected.
Even with their blue lights flashing, its stores became shabby and merchandise displays grim. Its product line appealed to a low-income, over 55 crowd, while Wal-Mart zeroed in on the needs of younger, more affluent families. Importantly, Kmart did not adopt the kinds of computer-powered buying, inventory management, distribution, product restocking and cash management innovations that became the linchpins of Wal-Mart success.
While Kmart spent money on ineffective TV ads, Sam Walton bought strategically placed distribution centers and the computers and trucks to effectively link them with an ever-expanding network of stores that, eventually, began to appear on Kmart’s turf. Kmart focused on image; Wal-Mart on price and service.
While Kmart diversified widely into specialty retailing with ventures like Office Max, the Sports Authority and Builders Square, Wal-Mart correctly bet that its bottom line would be more enhanced by supplementing its general merchandise with food. By 1996 Wal-Mart had become the nation’s second-largest grocer, while Kmart had already begun divesting itself of the ventures that had taken its energies away from its discount operations.
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