The Tragic Death of Kmart is Happening Right In Front of our Eyes

Are these stores even safe to go into!!?? 24 odd pics.

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“Sears Holding Corporation” is the corporate name stamped on the SEC filings. What’s the other entity being held? It’s one that in my humble opinion gets lost in the well-worn discussion that Sears is on a downward death spiral. That entity: Kmart, Sears’ uglier step sister.  Remember, these two ugly ducklings were joined by a marriage in 2004 in a deal that was pitched as positively transformative to the future of both iconic brands. Umm, think again.

The research and photos presented below show that Kmart, believe it or not, may be in WORSE fundamental shape than Sears! By fundamental I mean dreadful to visit, borderline unsafe stores that are sending the division’s financials down a path of no return.  None of the photos are sensationalized or touched up via an Apple program. The data is derived from SEC filings that are totally free to the general public. This is me bringing to life how a consumer sees Kmart as they walk through the front door, combined of course with my blend of finance fun.

Say hello to Eddie Lampert’s OTHER daughter…

Disclosures:

  • No charts are used as I believe the gravity of Kmart’s situation would be lost in colored lines and scattered dots.
  • I was dragged to Kmart as a child pretty much every weekend. “Started from the bottom, now we hear.”–Drake
  • I, nor my team, was harmed by visiting these Kmart stores (you will understand this when looking at the 24 photos below).

Table #1: Kmart Melts Away, Rivals Attack

What this table shows: Kmart’s brand and stores have not been properly tended to, causing it to shutter stores over the years. As those store closures occur, the fundamentally stronger Wal-Mart and Target open stores with their nicely integrated online and social platforms to conquer the mind and wallets of consumers. Kmart therefore becomes a distant memory, something clearly demonstrated in the same-store sales comparisons in Table #2.

Stores in Operation

Table #2: Wal-Mart and Target Thieve Kmart’s Customers

Not spotted: Kmart’s pre-announced 3Q13 same-store sales figure of -2.6%, which would be 0.5% worse than 2Q13.

Same Store SalesTable #3: Slimming Margins

As negative sales persist (eight quarters in a row…), and to prevent them from falling further, Kmart has to become more competitive on price than it would like to.  Check out how underinvestment in the stores since the merger has blown back on Kmart via weaker profit margins than its hated rivals.

Margins

Socially Sharable Quotes: Eddie Lampert, CEO of Sears Holding Company

Once again, these are all direct quotes from Mr. Lampert. They collectively depict a person with strong financial expertise, but not the intricate knowledge base in retailing principles (benchmarks: Sam Walton; Terry Lundgren at Macy’s) and a lack of emotional connection to the families that walk into a Kmart hoping to buy enough basic needs to make it to their next paycheck.

November 17, 2004-Merger Announcement Interviews

  • “We  need to have a very low cost structure in order to compete with our  biggest competitors.” Too low a cost structure (see 24 photos below) actually causes a retailer to NOT be competitive with arch rivals.
  • “I don’t think any retailer should aspire to have its real estate to be worth more than its operating businesses.” The prolonged asset sell-offs suggest…
  • “I think it’s pretty obvious that scale is very important to compete effectively.” See store closure table above.

February 28, 2013-Annual Letter to Sears Holding Company Shareholders

  • “Finally, we demonstrated that the operating performance of the company, while still significantly below what it should be, was not on a continued downward trajectory.”
  • “As anybody can now see from the events surrounding JC Penney, Best Buy, Toys “R” Us, Staples, Barnes & Noble and others, the retail landscape is fundamentally shifting. In our case, observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores. This ignores the significant investment that the retailers cited above and many others have made in their stores without relieving themselves of what I believe are the more fundamental issues facing the retail industry today. If it were just about store investment, then Best Buy would be thriving after the demise of Circuit City, Barnes & Noble would be thriving after the demise of Borders and other retailers who made significant store investments would be thriving instead of struggling to chart a new course.”
  • “We realize that one bad experience has the potential to impact hundreds, if not thousands, of our members.”
  • “While commentators have suggested that we have underinvested in our stores, the data shows that in most cases, stores that were losing money in 2006 or were marginally profitable did not improve over the past six years.”
  • “As we have explained previously, we have invested selectively in our better performing stores.”

The Vertical Slideshow

Thanks for Nothing?

Can you spot the misspelled word? This is akin to a kick in the face of the consumer. You want a patron to your establishment to feel appreciated for having plunked down their hard earned dollars. Further, do the employees not care enough to alert management of a MIA letter on a highly visible sign? And hey, what if the likely old glue (or rusty nail) holding the other letters in place gives way, causing a letter to fall on the head of a customer while entering or exiting the store? Stop laughing, I am being serious.

Yes, the Kmart logo is a throwback (and it’s not even Thursday!).  The new one could be seen in the upper left hand corner here.

Thank you

Got Merchandise?

If you have no items to place here, why not disassemble the shelf to improve the department’s appearance? This display looks as if Kmart is liquidating.

Empty End Cap

Santa Must be Delayed

As an analyst, I see a completely barren shelf and wonder if Kmart is having trouble getting merchandise to its stores from timid vendors (or if there is a break in the process of shipping merchandise and then stocking it). As a consumer, I am left with the sense that Kmart won’t have what I need to make the holidays the holidays.

Empty Department

Sad Signage

Step away from the computer screen for a second, what do you see? I see a billboard for ice cold milk and pudding in the non-refrigerated juice aisle and product sitting on a dingy pallet. Paging the visual merchandise manager on aisle five.

Billboard

Antiquated Coolers

Aside from these coolers being visually old-looking, notice the door on the right that has NO lights on! Sure, why bother drawing in the consumer’s eye as they push a basket via a light? Also, a dark cooler gives the impression that the food inside is expired (I did not check that, however).

For comparison, check out the new well-lit coolers, and large eye-catching signs above them, at Dollar General.

Old Coolers

DG

Poor Black & Decker

Fast fact: Black & Decker is owned by a company formerly known as Stanley Works. Onto business. A rogue Black & Decker sign on top of an empty table that should have more product on it, that is displaying Green Mountain in a sad manner. Where is that visual merchandise manager?

Oh, and how old is that sign (it was actually slightly yellow in person)?  Here is what Black & Decker’s logo looks like in 2013.

BDK

Too Bad this Win is a Loss

Just so you know, this is how a highly paid executive will explain this: “we plan to leverage the Craftsman brand across multiple categories.” I actually dug this idea, but what I didn’t dig was the DUST on the plastic. Major turn-off (made it seem as if the BBQ sauce had been sitting for a long period of time).

bbq sauce

Make Sure to Wash Your DVDs

Here is a random washing machine sitting in the electronics section, next to the DVDs. And yes, the rug is torn up on the bottom right.

Life tip from this photo: “Own the Moment.”

washing machine

Atari Type Terminals

At Kmart, you pay the old school way…if the cash register works. Pictured is one of the most outdated POS (point of sale…) terminals I have seen in recent memory. It sits off in the electronics section. Oh, and all of those wires are exposed to the paying consumer.  So much for selling an enjoyable experience with those DVDs or excess TV that was shipped from the local Sears store.

Sorry IBM for the bad PR.

Registers

One of a Kind Electronics Section

An industrial rack, next to a folding table, next to the aforementioned random washing machine, nearby the Atari-type POS system. Time to head to Wal-Mart’s electronics section, mom.

Hey, see that wraparound row of storage bins in the electronics section?

Electronics

Death Valley

The brown corrosion on the floor caught my attention during the power walk, and I just needed to know the 411…

Battery Floor

…this is what I found underneath the bottom row of batteries. Forget the debate on whether a consumer would buy a Die Hard, or why a store manager is not rectifying this issue. IS THIS EXPOSURE SAFE FOR CUSTOMERS AND EMPLOYEES? You decide, here are the ingredients in a car battery.

Battery Sand

Why Hello Stockroom

I stood here for 15 minutes to ensure I didn’t catch merchandise being moved, hence the open doors. No dice, these doors were left wide open for whatever reason.  Not only does it look bad in the mind of a consumer, but it leaves the store open to theft. In retail, the unexplained disappearance of merchandise is called “inventory shrinkage.”

As an aside, the stockroom is highly unorganized.

Stockroom

No Flow

Stores are supposed to flow, with complementary items placed by each other. Think premium BBQ sauce atop where the steaks in a supermarket reside. Here we have luggage and coolers, summer items, shown next to cold weather items in ice melt and Craftsman snowblowers.

Look at the ceiling, see the out of service light?

No Flow

The Secret Passage to Nowhere

In the darkened room were the remnants of either an optical or portrait studio. That is unproductive space (that Sears Holding Corporation is paying for) that makes the store look as if it’s closing (can’t even lease it out given weak traffic at Kmart). Clever tactic to cover it up though with the industrial machine holding outdoor merchandise.

Secret Passage

Sad Sign

Yes, that is a bent in half paper sign telling the consumer “please buy these products.” Somehow, guess they won’t.

Those huggable flashlights, admittedly, look like a nice holiday gift for a child.

Sad Sign

Spotted: Underinvestment

Throwback clothing racks. Haven’t seen these styles since I was a child investor. Demonstrates underinvestment.  Moreover, the significant decline in inventory at the combined company over the years is evident in these basics categories (count the number of jeans in each pile). Guaranteed that those piles of clothes are missing sizes that are relevant to local market demographics.

Racks

Sisters Acting Alike

Similar to its step sister Sears, Kmart favors the empty shelf strategy to drive sales in footwear. Not the point here though. Where did the product displays go above? A consumer who doesn’t come to Kmart for a boot can’t even be enticed to buy a boot from across the store if there are is no display product that is at the eye level!

See the out of service light in the second picture?

Footwear

Footwear 2

Wrapping Paper

‘Tis almost the holidays, right? Costco says it is, its holiday merchandise has been on the floor since September. Whereas a CVS has its wrapping paper upfront, these offerings from Kmart are hanging out in the back of the store in an undecorated room with another Atari type POS system. It’s almost as if Kmart doesn’t want to pocket a sale.

Wrapping Paper

“Hustle, Loyalty, Respect”-John Cena

Sorry John Cena, Kmart has given up…as seen by only 7 of your t-shirts being messily presented above two boxes of something.

John Cena

We Appreciate You Coming to Visit Us

Welcome to Kmart, we want you to walk into these metal fixtures on wheels while you are texting on the new iPhone 5s.

Carts

Would You Put These Plants on Your Thanksgiving Table?

Yes, the basket is not supposed to be there. But, wow, who put this flower presentation together? Displays are supposed to wow the consumer, have them make a purchase they didn’t plan (which are the highest margin impulse purchases).  Moreover, in the case of this tired display, you get a depressed feeling before ever even stepping into the store.

Depressed feeling in a retail store = a hurry to get in and out, with less merchandise in the basket.

Plants

After exposing myself to this depressing Kmart analysis, I went to sit in the ice cream truck with a fro-yo.  Sorry to my Men’s Health family for the very rare cheat day.

Ice Cream

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