K-Mart store closures in Springdale, Jonesboro and 58 other sites across the country are not a surprise to retail analysts, consumers and employees who have seen the once iconic retail brand fade thanks to the rise of Wal-Mart, Target and other retailers.
About two dozen, curious bargain-hunting shoppers roamed the thinly stocked aisles at the Springdale Big K Discount Center on Monday (Sept. 19). Store officials said the last of day of business for the two Arkansas locations will be Dec. 11 and clearance sales begin Sept. 22. Howard Riefs, corporate spokesman for K-Mart, told Talk Business & Politics that making the difficult, said it was a tough but necessary decision to close the stores at 2010 S. Caraway Road in Jonesboro and 3142 W. Sunset Ave. in Springdale.
“It’s important for you to know that until then, the stores will remain open for customers until mid-December. … We have been strategically and aggressively evaluating our store space and productivity, and are accelerating the closing of unprofitable stores as we have previously announced,” he said.
Earlier this summer the retailer closed 74 K-Mart stores and roughly 60 Sears locations. This round of closures involves 64 stores across 28 states, including Arkansas. Riefs declined to say how many workers in the two Arkansas stores would be displaced. He said displaced workers such as salaried managers will be eligible for severance and have the opportunity to apply for open positions at Sears stores in their area. He said most of the workers are part-time, hourly and do not qualify for severance packages.
Riefs said K-Mart Shop Your Way Members will continue to be able to shop online for merchandise after the store closures are completed. The retailer hopes to retain a portion of the sales associated with the closing stores.
“We are always disappointed to see a business close its doors and displace workers, but these decisions like this are not made locally. The strong economy here today is a positive for those displaced workers who have a high chance to land another job quickly and that is my sincere hope,” said Springdale Mayor Doug Sprouse.
Shoppers in the Springdale store on Monday said they weren’t surprised to see the store close because many people forget the store is there because there is so little marketing and the location while on a main thoroughfare does not face the street and is partially hidden by a Bank of America branch which does face the street.
Talk Business & Politics price checked items at the K-Mart store and found prices for household cleaner, dog food, shampoo and other consumables were at least 10% higher than at nearby Walmart and Dollar General stores. The store did offer two “Blue Light Specials” during a 40-minute period around noon on Monday. A few customers lined up to purchase dog treats and pet items priced at $5 during the special were marked down to $1. The same was done for some clearance household cleaning items as well.
There were six registers at the front of the Springdale store and just one checker open at mid-day on Monday. Standing in line, J.W. Turner said he lives in the neighborhood and heard the store was closing but it came as no surprise to him.
“It’s convenient for us, but there really aren’t any bargains here and the service is spotty,” he said.
Store officials in the Jonesboro store declined comment on the pending closure except to say the doors will close for good once the clearance sale is complete.
‘LACK OF ATTENTION’ TO BRAND
“K-Mart has struggled to find a brand identity but one could argue that it hasn’t tried that hard to do so, “ said Carol Spieckerman, CEO of Spieckerman Retail. “Considering the proactive and aggressive moves that its competitors are making, K-Mart can’t sit idly by and hope for the best, yet that seems to be the approach up to this point.”
Spieckerman said since hedge fund manager Eddie Lampert took over Sears and K-Mart, Walmart, Target and dollar retailers have really upped their games – yet K-Mart still sits as an undifferentiated big box. To be fair, she said the number of store closings K-Mart announced represents a small percentage, but there are no indications the remaining stores will gain strength.
K-Mart began the year with 870 stores and soon will be under 800 for the U.S. market. Ten years ago, KMart had 1,416 stores. Sears, its parent company, has suffered a similar downsizing with about 730 stores operating from the 2,427 a decade ago.
“It was clear when Lampert took over Sears and K-Mart that he wasn’t a traditional ‘merchant prince’ and initially, that looked to be a good things. In fact, many of the early innovations that he introduced, including click-and-collect, making Sears’ private brands available to other retailers and operating a stand-alone innovation lab, were quite forward-thinking at the time and have since been adopted by other retailers. At the end of the day, though, the lack of attention to brand identity and differentiated store environments and shopping experience have been hard to overcome,” Spieckerman said.
Just last week Moody’s analysts speculated that Sears and K-mart don’t have enough money – or access to money – to stay in business. In a note published Sept. 14, Moody’s’ downgraded Sears’ liquidity rating, noting the “retailer is bleeding cash” and will have to continue to rely on outside funding or the sale of assets, such as real estate, to sustain operations.
“We recognize the risks associated with relying on these sources and continued shareholder support to finance its negative operating cash flow which is estimated by Moody’s to be approximately $1.5 billion this year,” the analysts wrote. “The ratings …reflect our view on the uncertainty of the viability of the Kmart franchise in particular given its meaningful market share erosion.”
Sears reported in August its cash had fallen to $276 million from $1.8 billion a year ago. The reason cited for the drastic cash burn is plunging sales at K-Mart and Sears. The company reported net sales of $5.7 billion in the second quarter, a decline of 8.8% from a year ago. Same-store sales were down 3.3% at K-Mart and 7% lower at Sears.
Since K-Mart merged with Sears in 2005, the discount retailer has seen its sales drop by $27 billion. Moody’s said K-Mart’s parent Sears has debts of $3.5 billion and an unfunded pension and post-retirement obligation of $2.1 billion, placng the company in need of cash if it’s to fund 2016 and 2017 minimum pension contributions.
Neil Stern, partner at retail consultant at McMillanDoolittle, recently said it looks as if the retailer’s days are numbered. He was quoted by Fortune recently on the demise of K-Mart and Sears.
“It’s incredibly hard to run a retail company when every quarter you get less sales and less customers coming through the door,” Stern said. “You can only cut costs for so long and sell assets.”
“Sam Walton taught us to be on guard because everyone is competition. For too long K-Mart management has been asleep at the wheel,” said Peggy Knight retail consultant at Vendor Masters and former executive for Walmart and Sam’s Club.
“During my tenure at Walmart and Sam’s Club we viewed K-Mart as a competitor but as the years rolled on it became clear that K-Mart management was too focused on profits and losses and not nearly as focused on customer service and taking care of their employees,” Knight told Talk Business & Politics.
A short time after Knight left Walmart she was recruited by K-Mart but said she was not interested in working for a company with so little focus on its people. Knight said it’s been about 10 years since she was in a K-Mart store. She said the brand lapsed from the consciousness of most consumers and the retailer hasn’t done anything to stop it.
“When I went to work for Walmart in 1983, K-Mart was the No. 1 retailer in the U.S., but without a team of leaders working around a common goals that reign was doomed to fail for K-Mart. At Walmart we were not allowed to make excuses for the weather or the election,” Knight recalled.
Knight also predicts K-Mart’s days are numbered because she thinks they gave up years ago when the retailer couldn’t execute and properly market something like the Blue Light Special for which it had once been known.
“When I heard they were bringing this back, I thought maybe the retailer realizes the importance of retailtainment and I expected to see them market the return to basics. But they do no marketing of their brand to speak of and consumers today don’t know who they are, or they have largely forgotten,” Knight said.