By  on February 23, 1994

TROY, Mich. -- Sleeveless blouses? Forget it. Athletic shoes? They're hot. Paper plates? No way. Synthetic blends? Slow movers -- natural fibers, please.

Lessons like these are helping Kmart fine-tune merchandise and marketing at six stores in the Czech Republic and seven in Slovakia. As a new player in the Eastern bloc, Kmart executives are discovering firsthand what shoppers in such cities as Prague and Bratislava want.

"Merchandising is a big challenge," said Tom Watkins, Kmart's senior vice president of international operations. "We're still learning what sells and what doesn't sell. Merchandising is going to be an ongoing learning proposition. We went in with certain ideas, and we've learned a lot. We have developed some very capable local people who are involved with our U.S. buying staff."

Kmart first bought a majority interest in Maj, a seven-level department store in Prague, in May 1992. Later that year, it bought 12 other stores in Czechoslovakia, which split into the Czech Republic and Slovakia on Jan. 1, 1993. The stores were renovated and opened as Kmarts in late 1993.

Watkins declined to reveal specific sales goals. Analysts said the project is still too new and the economies are changing too fast to project how the Eastern European Kmarts should do over the next year.

Approximately 80 percent of the products on Kmart shelves in the Czech Republic and Slovakia are sourced from within those two countries. That does not necessarily mean the product is manufactured there, but it does mean the merchandise is handled by a Czech or Slovak distributor.

The locally sourced merchandise is supplemented by goods from other European nations, the U.S. and Asia.

"The biggest impact we've had is in sportswear, like short-sleeve sports shirts and casual slacks," said Watkins. "Before, casual dress was much more formal and with darker colors than [in the U.S.]. We've introduced brighter colors."

In women's apparel, shorts sets and swimsuits in bright colors and updated styles are enjoying brisk sales, Watkins noted. Lingerie is another winner, Kmart having introduced a more extensive line than the former state-run stores offered.

Still, Czech and Slovak women seem to cling to a certain conservatism; sleeveless blouses, for example, lingered on the racks."They're much more traditional dressers," Watkins said. "Most of the women wear skirts. Pants aren't nearly as popular."

Footwear -- mainly athletic shoes and winter boots -- has been hot.

"They had winter boots before, and they were good quality, but they were not particularly well styled," he said. "They were heavy looking -- very utilitarian but not very stylish."

Colorful, contemporary infants' and children's apparel is also proving popular. Blanket sleepers, evidently a new concept to Czech and Slovak parents, have done well, and summer sets for toddlers were a sellout, Watkins said.

"We have a lot of potential there we haven't tapped," he observed.

On the down side, Kmart learned that Czech and Slovak consumers don't like disposable products. Paper plates, for example, just don't sell.

Watkins pointed out that automated techniques, such as bar codes and scanning, although commonplace in the U.S., are limited or unavailable in Eastern Europe.

"Gathering sales information and ordering is done manually," he said. "Bar codes don't exist on many of the local products. It's changing, but until you can capture the sale of every item on the cash register, it's really not practical to reorder centrally. It has to be done at the store."

There's also the issue of disposable income. Slovakian consumers took a hit last year when the currency was devalued 10 percent.

"In the Czech Republic, inflation and unemployment are really pretty well controlled," Watkins said. "But the purchasing power of the average person is still very small compared to what we're used to in the U.S. When facing a major purchase, like a pair of shoes, a customer in Prague will shop for two or three days before buying."

One critical area has been training. In the former state-run stores, shoppers were supposed to be grateful a product was in stock. Customer service was virtually unknown. Kmart has been struggling to change that.

"Before, if a shipment of shoes came in, customers would wait in line. The people who worked in the stores couldn't have cared less whether shoppers were there," Watkins recalled. "That's changed. I'm proud of the progress our people have made there. I think they've wanted to emulate the West, and the employees have been very good at catching on. Our training in the stores has come a great distance. We've restructured and tried to get the managers closer to the customers by taking out some layers of management."The results, Watkins said, are showing up in monthly focus groups with shoppers. Kmart's service ratings are climbing steadily. Advertising has also played a role in building Kmart's image, according to a spokeswoman for the discounter.

"Kmart was sort of an unknown commodity," she said. "These large department stores [that Kmart bought] had existed for a long time. They were government-owned. People couldn't really touch and feel the merchandise. They couldn't get personal service. They didn't get people going out of their way to assist them in their purchase. We've tried to convey those changes in our advertising."

Kmart's U.S. advertising agency, Ross Roy, of Bloomfield Hills, Mich., has opened a Prague office, staffed with people from the Czech Republic who know the ins and outs of advertising in Eastern Europe. Most ad dollars are directed to newspapers and radio. Kmart also relies heavily on in-store promotional flyers.

"There's a lot of interest in sampling," the spokeswoman said. "People love the opportunity to try something new. When we had a grand reopening, we gave away sticks of chewing gum. People stood in line for 40 minutes to get a stick of gum."

She pointed out that Kmart's sku depth makes it stand out in Eastern Europe.

"You used to be able to buy only one kind of light bulb. There was no choice," she said. "Now shoppers can select from five or six light bulbs, with soft white and different wattages. Shoppers are concerned about price, but they also want the new bells and whistles. They're starting to understand that the light bulb they used to buy still exists, but now they have other choices."

With the U.S. discount store business a mature industry, Kmart sees growth opportunities in the international field. As reported, Kmart's first two stores in Mexico City will open in April, followed this year by units in Singapore.

Singapore is a "mature, sophisticated market," Watkins said, "but we want to learn how to do business in the Pacific Rim countries."

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