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Kmart: A Strategy for Survival

Lindsay Huston Hamilton Lee Chris Shewchuck Renee Welsh Economics of Competitive Strategy April 30, 2003

Introduction Discount retail has evolved into a highly competitive industry. As a result, discount retail pioneer Kmart, has faltered and fallen into Chapter 11 reorganization. This paper provides analysis of the industry, and a discussion of the firm-specific strategy that Kmart should undertake in order to reestablish itself as a player in the market. Relevant Industry Forces Entry Barriers Entry barriers in the discount retailer industry are high. In order to compete with the likes of Wal-Mart and Target, a company would need a minimum efficient scale to compete on cost. To Kmart’s advantage, it does benefit from a certain amount of economies of scale. The company is still the third largest retailer in the U.S. Once the restructuring plan has been implemented, Kmart plans to have 1,500 stores remaining. But Kmart has to realize, “Everybody today lives under the shadow of Wal-Mart.” 1 Kmart should not fool itself into thinking that its economies of scale in purchasing or its distribution system can compete with Wal-Mart’s. Wal-Mart is known for its expansive, powerful, and efficient inventory and distribution capabilities. It’s also known for its low-cost structure from real estate to labor (non-union). Wal-Mart is now one of the leading buyers of consumer products in the world. Wal-Mart claims it has the biggest private satellite communications network in the U.S. The system links stores to headquarters in Arkansas by voice, data and video. Suppliers can tap directly into WalMart's computers, where its system tracks sales of every item - improving inventory controls and cutting costs. Kmart has tried to copy Wal-Mart’s technology prowess in the past, but have failed to implement properly. 2 Wal-Mart is not the only behemoth…...

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