The mass merchandise shakeout continues. This time, promotion plays a crucial role.
The top-of-the-heap battle is between Kmart, Target, and Wal-Mart, which have used high volume and low prices to defeat regional chains including Bradlees and Caldor’s. Wal-Mart and Target have successfully defined an image and tailored their promotions to it. Wal-Mart focuses on low price; Target plays up quality and trendiness.
“Wal-Mart and Target use promotion marketing to reinforce their total brand messages,” says Don Stuart, a partner at consultancy Cannondale Associates, Wilton, CT. “For Wal-Mart, it’s ‘We Sell For Less.’ Target has taken the high ground by offering high quality and working so closely with manufacturers that it’s difficult to tell where its message ends and the manufacturer’s begins.”
Troy, MI-based Kmart, however, is struggling. The chain suffered a net loss of $493 million in the first nine months of 2000 (yearend results were due mid-March), a huge downturn from a net loss of $9 million for the same period in 1999. The company blames soft sales and inventory liquidation that cannibalized regular sales, which held revenue growth at 1.1 percent to $36.5 billion last year.
By contrast, Wal-Mart reported net sales up 15.9 percent to $191.3 billion and net income up 17.1 percent to $6.3 billion for the fiscal year ended Jan. 31, while Target boasted revenues of $36.9 billion (up 9.5 percent) and net earnings of $1.26 billion (up 6.7 percent) for the fiscal year ended Feb. 3.
Part of the problem is that Kmart hasn’t built a distinct brand. “Kmart is caught in the middle,” says Stuart. “It sends a blurry message because they offer neither low price nor especially high quality.” To redefine itself, the chain late last year lured away branding hotshots such as chief marketing officer Brent Willis, a former Coca-Cola exec, and senior vp-merchandising John Owen, a 10-year Wal-Mart veteran.
The infusion of new blood could be paying off. “Later this spring, we’re launching a new advertising campaign. And we are seeing a fruitful four months of solid store sales,” says Kmart spokesperson Susan Dennis. “We’re concentrating on our strategic imperatives, which include world-class execution and being sales- and marketing-driven. Our stock price is up, so things are improving.”
Kmart does well with live “retailtainment” events, which have become a key marketing strategy for chains. “Mass merchandisers are looking at what they can do with point-of-purchase to create a shopping event,” says Andy Murray, ceo of Wal-Mart agency ThompsonMurray, Fayetteville, AR. “Today, mass merchandiser marketing is less about driving traffic into stores than speaking to shoppers once they’re already in the store.”
Live events also can enhance a store’s local image — vital as chains make the “friendly neighborhood store” a thing of the past — especially tie-ins with local organizations. Kmart partners include NASCAR, Atlanta, which tapped the chain for its first national in-store promotion last year. The NASCAR 500 offered a collect-and-win game designed to drive traffic and boost purchases. Game books featured 65 products that earned shoppers points when purchased; when they collected 500 points, they received a die-cast collectable car and a Kmart coupon book. The companies have not announced future plans.
For Black History Month in February, Kmart teamed with The Smithsonian National Museum of American History for an exhibit tour called “Wade in the Water: African-America Sacred Music Traditions 1871-2001.” A 48-foot mobile museum travels to Kmart stores, schools, and community locales through summer. The Feb. 15 kickoff starred Kmart “Share the World” spokesperson CeCe Winans, a Grammy-winning Gospel singer who is making other select appearances.
Bentonville, AR-based Wal-Mart also relies heavily on local events. Its annual FLW Fishing Contest has enthusiasts fishing over the weekend and displaying their trophies in Wal-Mart parking lots the following week. Last year’s tournament attracted such sponsors as Energizer Holdings, Land O’ Lakes, Black & Decker, and Stetson. A Visa $2 Million Challenge rewarded anglers who reeled in state-record catches.
Minneapolis-based Target’s primary local thrust is cause tie-ins. The company (including sister chains Dayton’s, Mervyn’s California, and Marshall Field’s) raised $3.7 million for United Way in its home state of Minnesota last year.
Mass merchandisers are demanding account-specific promotions now that co-marketing has become a cornerstone to strategy — and funding. “Promotion is becoming more important [because] chains market themselves as unique places to go,” says Bill Sinnott, president of field marketing at Ryan Partnership, a Westport, CT-based agency that works with Wal-Mart and recently established an office in Bentonville.
Retailers usually hold the alpha position over manufacturers, who crave added visibility in-store and in ads. Procter & Gamble’s Pampers Parenting Institute and the American Academy of Pediatrics (AAP) tapped Wal-Mart as exclusive retail partner for their Babies First program, which educates parents on child rearing. “More than 10 million parents with children under the age of three are in Wal-Mart stores each week,” explains P&G spokesperson Tami Jones.
Babies First debuted in October 2000 for Baby Safety Month. P&G encouraged individual stores to tailor their efforts. The effort was repeated last month. “We got great feedback from all the partners,” Jones says.
Mattel, El Segundo, CA, joined with Wal-Mart to develop the Parents Choice Awards, a monthly program that spotlights a different toy from Mattel’s Fisher-Price lineup based on parental suggestions.
In March, Kmart tag-teamed with World Wrestling Federation Entertainment, Stamford, CT for a Wrestlemania X-Seven Sweepstakes, which featured both in-store and online components (at wwf.com and bluelight.com). One grand-prize winner received a trip to the Wrestlemania X-Seven event in Houston on April 1 and lunch with WWF superstar Kurt Angle — who was featured on P-O-P.
Kmart’s partnerships often involve proprietary lines of merchandise. “Kmart adheres to a model of offering branded product mingled with some star power” such as the Jaclyn Smith clothing line, says Jon Kramer, president of J. Brown/LMC, Stamford, CT.
The chain struck an alliance in February with Walt Disney Co. to develop a new line of children’s clothing. The deal marked the first direct-to-retail mass-market agreement for Disney Consumer Products. The partners are working together to create the in-store experience.
When it comes to Internet marketing, however, the mass merchandisers are courting partners with hats in hand.
Kmart is experiencing success with its BlueLight.com free ISP subsidiary (although it recently added a usage threshold and began charging heavy users.) The operation averages more than two million visitors per month, and reported a 1,000-percent increase in sales for the 2000 holidays.
In January, the chain said it would tighten the bond between BlueLight.com and retail stores with online shopping kiosks in more than 1,100 Kmarts this year. Kmart’s success with BlueLight.com rests largely on the fact that the retailer has stayed hands off, allowing Internet experts to develop strategy.
Wal-Mart and Target have both teamed with America Online, Dulles, VA, to get on the Internet fast track. Both chains are developing co-branded ISPs with AOL and distributing software through their stores. Target is offering startup CD-ROMs through in-store kiosks in more than 900 locations nationwide.
Wal-Mart could soon get another online boost. Media reports say ceo Lee Scott and Amazon.com founder Jeff Bezos are in talks for a strategic alliance that could emerge by summer. The deal would position Amazon.com as Wal-Mart’s e-commerce supplier (à la Amazon’s deal with Toy “R” Us).
How Low Can You Go?
Deep-discounting competition is the next challenge for mass merch chains. “[Stores] such as Family Dollar could be stealing customers away from Wal-Mart and Kmart, which rely on heavy traffic,” says Cannondale’s Stuart. “The deep discounters are convenient and cheap, and that’s the name of the game in this category.”
Mass merchandisers need to keep their end up with selection (with food growing in importance), because they can’t do it simply with discounts anymore. “Notice that Wal-Mart says ‘We Sell for Less,’ not ‘Always Best Price,’ because you can beat them if you look around,” Stuart says.
With Wal-Mart, Target, or Kmart on every corner, the question is, “How many shoppers will bother to look?”