Kmart's loss isn't everyone else's gain

Jennifer Marks, editor-in-chief -- Home Textiles Today, 1/20/2003 12:00:00 AM

The 326 closings Kmart announced last week will leave it with 1,503 stores — still larger than Target by roughly 350 units, but 18 percent smaller than its store base almost 10 years ago.

While Kmart still faces a host of challenges as it works to exit Chapter 11 protection and find a profitable, sustainable niche for itself, Kmart's situation potentially exacerbates some vulnerabilities among its chief rivals as well.

Target, for example, may lose more than it may gains from a weakened Kmart. The Kmart customer has never really been much of a Target customer (except for the customers drawn to Martha Stewart Everyday merchandise). Moreover, Target's trading area is usually an exit or two away from Kmart's, so the uptick in sales from Kmart closings probably won't be significant.

What Kmart has to watch out for now more than previously is Wal-Mart. Having at last dealt Kmart a crippling blow, the Bentonville Bruiser could turn its guns more fully on the Minneapolis Marketing Machine.

Talk that Wal-Mart is preparing to broaden the upper end of its assortments and chase higher price points has been circulating for months now. Wal-Mart has already reported success on the apparel side by leveraging the George brand generated by its Asda chain in Britain. It's not unthinkable for it to draw from its international portfolio to launch similar brands in other key areas of the store, including home.

This could hit Target at a delicate time. In the analyst community, the bloom is off the Target rose — at least temporarily — worn away by skepticism about Target's credit card program and, more recently, by its tepid holiday performance. If Wal-Mart makes a direct run at Target's upper-end shoppers, Target will have to innovate even faster.

But Wal-Mart has its own soft underbelly. The well-publicized reduction of Kmart's market presence could heighten consumers' Goliath Complex about Wal-Mart. While it's easy to find Wal-Mart shoppers who love, love, love the store, it's just as easy to find Wal-Mart shoppers who don't. They may resent the loss of other stores in their communities. Or they may simply dislike the company for its prominence. But they can't argue with the prices or the reliable selection, so they grit their teeth and shop Wal-Mart — regularly.

That's a dangerous place for any company to be. And while it's unlikely that any newcomer can rock Wal-Mart's world in the near future, the larger it grows, the more working parts it has to care and nurture.

Certainly, of the three, Kmart faces the most uncertain future. But its role as odd man out over the past decade gave both Wal-Mart and Target some measure of protection. As the landscape changes for Kmart, it changes for its competitors, too.