FLICK EYES ’96 PROFIT AT KMART
Byline: Valerie Seckler
NEW YORK — Kmart’s stores continue to be buffeted by a confluence of market forces, but Warren Flick, elevated last Wednesday to the number-two post at the discounter, sees the chain as a money-maker this year.
“With the string of executive changes we’ve made, we expect to see a renewal in comp-store sales growth, above third-quarter levels, beginning with the holiday season,” Flick said in an interview from Kmart’s Troy, Mich., headquarters Tuesday.
“We have tough competition, and we know our primary mission is to build market share,” Flick added of the chain whose same-store sales slid 3.8 percent in July and 0.8 percent in September, after rising just 1.8 percent in August. “Bringing all these folks on board is a challenge while building for the future.”
What’s the bottom line for 1996? Flick forecast that Kmart will make money, but wouldn’t say how much. In contrast, Donaldson, Lufkin & Jenrette estimates the chain, which lost $1.25 a share in 1995, will shave its loss to 23 cents this year. Retailing consultant Walter Loeb sees earnings of 45 cents for the discounter.
Flick, hired as president and general merchandise manager of the discount division last December from Sears de Mexico, is trying to answer Wall Street’s call to produce profits — by building its appeal to Main Street’s shoppers with costly improvements to merchandising and marketing.
“It’s a catch-22,” observed Christine Fasano, a high-yield analyst at DLJ. “They’re caught between pressure to boost the bottom line and drawing more traffic with improved merchandising and competitive pricing.”
The highly regarded Flick — promoted Oct. 30 to the new post of president and chief operating officer of Kmart’s U.S. stores — has until this spring before investors begin to assess more fully the progress made on his watch, analysts projected Monday.
It would be unrealistic to expect efforts under Flick to have jelled this fall, said Wall Streeters, who noted the numerous management changes made this year at the nation’s second-largest retailer.
It was as recently as April 22, for instance, that Kmart named Stephen Ross its senior vice president and general merchandise manager for soft lines, the high-margin category chief in Kmart’s efforts to return to profitability. And it was only on June 3 that Maria Comfort was tapped as divisional vice president of ladies ready-to-wear.
Besides stoking comps, Kmart has to light a fire under sales per square foot, said Flick, lifting the figure to at least $250 from the $195 produced by the chain’s 2,020 stores today.
“Where we’re disadvantaged is in our sales productivity versus the competition,” acknowledged the Kmart president. “As our traffic and sales build, we’ll be able to leverage our fixed costs, which in many cases are below our competitors’.” Flick cited favorable terms in leases from the Sixties and Seventies as an example.
“Our passion is to accelerate sales growth in our stores,” Flick related. “With the assumption of my new post, there now is one name attached to the duty of pulling our team together to speed up our renaissance.”
For 10 months Kmart has made progress on several fronts, said Flick: building a new management team; moving to convert 150 Kmart stores to its high-frequency format by yearend, with another 450 slated for 1997; and bolstering relationships with branded vendors, to build assortments offering a smaller number of well-priced labels and improved in-stock positions.
These relationships are also expected to bring Kmart prices that are more in line with those at other discounters, Flick said. “Two weeks ago, we had a strategic alliance conference with our vendors,” he noted. “It’s crucial for us to [soon] enjoy the kind of competitive cost structure that a retailer like us should have.”
Appraising Flick’s efforts this year, analysts credited Kmart for hiking in-stock apparel, boosting customer service and cleaning up its stores. But they said serious work still needs to be done in refixturing stores, focusing apparel mixes and sharpening prices.
“I think Kmart is past stage one, the cleaning out and getting acquainted phase under Flick,” said Loeb. “In stage two, they have to raise comps. They are not seeing consistently better sales.”
One of the few places where Kmart is beating its business plan is in its 141,000-square-foot 34th Street unit, adjacent to Manhattan’s Penn Station. It opened Oct. 1. “We are very pleased with the store and extremely pleased with our business in apparel and soft home there,” Flick said. “We made our sales plan above our national average and it’s already exceeded that level.
“Clearly the traffic is the key there,” Flick continued. “It’s a shopping efficiency store. All of the ready-to-wear assortments are doing well at 34th Street, from Kathy Ireland, repositioned for a younger, 25-to-30-year-old customer, to Jaclyn Smith, now aimed at 25-to-40-year-old career shoppers.”
Despite such incremental gains, Wall Street remains skeptical.
“I think Flick and [Kmart chairman and ceo Floyd] Hall have made a lot of good initiatives, but they’re not things on which to build a turnaround,” said Peter Schaeffer, analyst at Dillon, Read & Co., reflecting the view of several analysts. “They haven’t defined a position that sets them apart from Wal-Mart or Target, and in my opinion the stock shows that,” Schaeffer added Monday. “It went all the way up to 16 and it’s back down at 9 1/2.” The issue ended at 9 3/4 Tuesday on the New York Stock Exchange.
An Eventful Year
NEW YORK — In his first 10 months at the helm of Kmart’s 2,020 U.S. discount stores, Warren Flick has put his imprint on the retailer, mostly by making numerous management changes. Here are the highlights at Kmart since Flick’s appointment:
Dec. 7, 1995: Kmart names Flick, then chairman and chief executive officer of Sears de Mexico, president and general merchandise manager of its U.S. discount stores. It also makes Flick executive vice president of Kmart, which he’s slated to join in January 1996.
Dec. 12: Martin E. Welch joins Kmart as senior vice president and chief financial officer, from auto parts supplier Federal Mogul Corp.
Dec. 12: Joseph J. Collins is promoted to senior vice president of logistics. He was vice president of strategic business integration.
Jan. 2, 1996: Flick comes on board and quickly begins to put his stamp on management.
Jan. 3: Former Sears official Larry Davis is named vice president of advertising. In 1995, as a consultant for Young & Rubicam, Davis worked on ads for Sears de Mexico.
Feb. 1: Kmart shows the door to Michele Fortune, its top women’s apparel merchant, and to William A. Parker, its top merchandiser for home goods. It also reassigns Cecil Kearse from men’s and children’s apparel merchant to a new post, vice president of merchandise presentation and communications.
April 22: Stephen Ross, a relative unknown in the women’s field, is named senior vice president and gmm for all soft lines. The former exec at Phillips-Van Heusen and Sears succeeds Charles Chinni, who was executive vice president of merchandising for four months.
May 5: Flick predicts a “renaissance” in Kmart’s U.S. stores by mid-1997.
June 3: Kmart taps Maria Comfort as divisional vice president, ladies ready-to-wear.