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Adamson Hones Kmart Recovery Plan

<CS:BOLD>NEW YORK -- Kmart might be readying the closure of hundreds of stores, but as chairman James B. Adamson sees it, there is no major drop in sales volume ahead.<BR><BR>The ailing retailer will announce a wave of store closures on March 11. As a...

NEW YORK — Kmart might be readying the closure of hundreds of stores, but as chairman James B. Adamson sees it, there is no major drop in sales volume ahead.

The ailing retailer will announce a wave of store closures on March 11. As a result, Adamson said: “We’ll downsize to $35 billion, give or take a few billion. That’s [still] a lot of money” in terms of sales, he said. But considering the number of stores to be shuttered, that isn’t much of a drop from last year’s $37 billion volume, he suggested.

In a press conference following the official launch of Kmart’s exclusive Disney brand children’s merchandise, at Kmart in Astor Place, Adamson outlined his battle plan for getting through the bankruptcy and strategies for the future. Adamson is effectively leading Kmart through its turnaround, although Chuck Conaway remains its chief executive officer.

The top priority: keeping the company together by limiting employee departures and revenue declines. “Programs to keep our employees from going somewhere else, that’s our primary investment,” he said.

Other initiatives he cited:

Creating more sharply defined apparel departments, already being seen to some extent this spring, in areas such as Jaclyn Smith and Route 66.

Eliminating weak categories and bolstering strong ones. “The biggest challenge is communicating growth categories and eliminating weaker categories,” he said.

Continued efforts to add exclusive lines. “We are looking at other licenses as we speak, but I will not tell you about them until they are signed,” he said.

Catering to minority populations better by, for example, expanding its Martha Stewart marketing effort.

Adamson explained that store closings are not based on geography or demographics. “It’s purely financial,” and based on earnings before interest, taxes, depreciation and amortization, he said. And even if a store is not meeting its profit goals, it could be retained if the company feels it could improve, Adamson added. Stores are expected to begin closing this summer.

He also discounted some analysts’ estimates on store closings, which have been as high as 500 to 700, as being too high. Kmart operates 2,100 stores and went Chapter 11 on Jan. 22.

He also said Martha Stewart is continuing to show full support to Kmart. “I’ve just met with her for the second time in a month. Martha Stewart is not penetrated in urban, Latin markets. We’re looking to expand Martha.”

But that’s part of a strategy to cater more to urban minority populations overall. “I’m personally looking at the urban markets. Forty percent of the dollars spent at Kmart are by African Americans, Native Americans, Asian Americans and Latinos.”

Although he contended that all major suppliers are supporting the company in its bankrupt state, it’s hardly a rosy picture. “We are not fully replenished,” he said. “Shipments are up to a level of 80 percent in stock, but 20 percent [out-of-stock] is never acceptable.”

Electronics shipments have been the most deeply affected, Adamson said, acknowledging that the bankruptcy caused disruption throughout all categories, though the extent of it was “very small and limited” with the chain’s strongest brands.

Business trends could be better. Adamson said that for the past four or five weeks, apparel sales have been running some increases,with women’s outperforming men’s. However, sales on a total store basis are “down a bit,” he said. The Disney offering, which has been rolled out to all stores in the past month, should give Kmart a lift. The collection features Disney branded merchandise, without any Disney characters on the products, on an exclusive basis. Kmart also sells some merchandise with Disney characters. Not known for its decor, Kmart has even dressed up the Disney departments with photos of boys, girls and babies laughing and playing, and whimsical references to Disney stories.

“Apparel has gone through stops and starts. We didn’t want to get too forward or too junior. Lorna and her team have really zeroed in on our customer and what they are looking for,” Adamson said, referring to Lorna Nagler, senior vice president and general merchandise manager of apparel and jewelry. For spring, Jaclyn Smith is more focused on classic styles, key items and fewer coordinates. Route 66 also has been refocused on a young, casual lifestyle emphasizing denim, khaki and weekendwear.

Asked if the company will meet its projection of emerging from bankruptcy by summer 2003, Adamson said: “I’ve been quoted as saying the summer of next year. But that is not satisfactory. Everyday we are in bankruptcy, we are less competitive. This is not a complicated bankruptcy. It’s a big bankruptcy.”

The firm is formulating a business plan that will be more specific about strategies and will seek to reorient Kmart so that it has an identity and niche distinct from the competition. “We are still trying to define that,” Adamson said. He has been dividing his time between working on the bankruptcy and working on merchandising and marketing.

There have been rumors that Kmart, in its wounded state, could be a takeover target. However, Adamson said: “No one has rung me up to say that we want to buy the company. It’s way too early,” in the bankruptcy process. “You don’t know how much debt Kmart will come out with” and what its real estate portfolio will look like.

Moreover, even a bankrupt Kmart would still be a costly acquisition. “This is an awfully big company,” he added.

“We’ve hurt shareholders, vendors and employees. That is the ugliest part of bankruptcy.”