How Kmart Went From Beating Walmart And Target To Bankruptcy

Say you need a toaster. And you have to go buy it in a physical store. Where would you go? Walmart? Target?

Perhaps Williams-Sonoma if you're feeling fancy? What about Kmart? No? Kmart might not have occurred to you,

and that makes sense. You might not even be able to find a Kmart near you. The struggling retailer has closed

over two-thirds of its stores in just the last 10 years. You would almost certainly have to buy your toaster elsewhere.

But if this were the 1970s, Kmart would probably be your first choice.

Kmart's origins date back to 1899, when American businessman Sebastian Spering Kresge opened S.S. Kresge,

a store that sold a variety of homegoods at a discount. By 1912, S.S. Kresge had 85 stores and annual sales

topping ten million dollars. It went public in 1918 and Kresge stepped down as president in 1925. But the store

remained popular as Americans battled through the Great Depression and two world wars. Then, in 1962, the

company's president, Harry Cunningham, capitalized on S.S. Kresge's popularity by opening another variety store:

Kmart. The first Kmart opened in Garden City, Michigan. 17 more followed in the same year. Four years later,

when Sebastian Kresge died at age 99, Kmart had expanded to 162 locations. The combined Kmart-Kresge

sales topped one billion dollars. Kmart quickly overtook S.S. Kresge. In 1976 alone, Kmart opened 271 locations

and accounted for nearly 95% of the S.S. Kresge company sales. So the company renamed itself Kmart Corporation.

In the 70s, they were adding a new store a week, which is just an incredible pace to maintain.

There were a lot of brands in the discount market that Kmart forced out of business.

They were the success story. Kmart had a few major strengths. First, it struck exclusive deals with popular

brands like Martha Stewart Living and Disney kids apparel. Second, it had the size to buy in bulk and resell

at steep discounts. And Kmart made the discounts an exciting shopping experience with their Blue Light Specials,

where managers would spontaneously announce sales with flashing blue police sirens and a booming "attention Kmart shoppers."

And finally, Kmart expanded rapidly. By 1995, Kmart's 2,000 stores made $34 billion in sales. Over 95 % of

Americans lived within a 15-mile radius of a Kmart. The company bought several other retailers like Sports Authority

and OfficeMax, making it the 15th largest corporation in the world. So that toaster you needed?

Yeah, you probably would have bought it at a Kmart. But then, seven years later, Kmart filed for bankruptcy.

It was the largest retailer in the U.S. to ever do so. It seemed Kmart was, well, toast. To learn why,

let's rewind back to 1962, the year Kmart opened its doors. Two other discount variety stores also opened

that year. They challenged Kmart with cheap chic fashion and rock bottom prices. You know them well:

Target and Walmart. While Kmart spread rapidly across the suburbs Walmart and Target took different approaches.

Walmart focused on rural America, pushing mom-and-pop stores out of business with its prices. It built efficient

supply chains to keep prices low and product moving quickly. This tactic worked. By 1990, Walmart surpassed

Kmart in sales despite having 600 fewer stores. Meanwhile, Target spread more slowly. It focused on

offering department store quality and service at an affordable price, embodied in its slogan "Expect More, Pay Less,"

and its nickname Targèt. This tactic also worked. By 1993, it only had 554 stores, yet produced nearly $12 billion in revenue.

By the mid-1980s, Target and Walmart started spreading into Kmart suburban turf. In doing so, they called Kmart's

very existence into question: if Target was more fashionable and Walmart was cheaper, what was Kmart? And that became the problem.

No one knew why you would go to a Kmart. And Kmart had another problem. While Walmart opened its giant

Supercenters and Target created exclusive lines with famous fashion designers, Kmart's stores fell into

disarray. Even as Kmart chief executives took home huge salaries, the stores' shelves were empty,

cash registers were outdated, and carpets were faded. Kmart's yearly sales fell by nearly 10 billion dollars from 1990 to 2002.

It sold all of its other businesses and 200 of its own stores. However, it was still deeply in debt, struggling to keep its shelves full and pay its suppliers on time.

They had problems figuring out matching sales to distribution. It sounds like an easy problem, but when

you multiply it by thousands of stores with thousands of items, it's not an easy problem.

Kmart bet it all on the 2001 holiday season. To challenge Walmart's "Always Low Prices,"

Kmart's new CEO Charles Conaway slashed prices on over 50,000 products nationwide.

But Kmart's suppliers couldn't keep up, and Walmart just slashed their prices even more. After a disappointing

finish to the year, Kmart filed for bankruptcy in early 2002.

Lenders just didn't have the confidence at that point to continue to roll over that debt for Kmart. As it went

through bankruptcy court, Kmart drew the attention of hedge fund manager Eddie Lampert. He thought the

value of the brand's real estate was worth saving, So he bought Kmart's debt, bringing Kmart out of bankruptcy by

May 2003 as its new chairman. Then, Lampert implemented what he hoped would be his masterstroke:

combining Kmart with Sears, the struggling tools and appliances retailer. Lampert was a major Sears

shareholder and he hoped that, by merging the strengths of each store, they would have the combined clout to take on Walmart.

But this, too, was a disaster for both retailers. Kmart shoppers didn't want Sears' tools. Sears shoppers didn't

want Kmart's homegoods. And both sets of shoppers disliked the deteriorating store interiors. So Kmart's sales

went into freefall, from 16 billion in 2009 to 5.8 billion in 2018.

Meanwhile, Walmart's 2018 U.S. sales swelled to $318 billion and Target stayed strong at $72 billion.

Kmart's parent company, Sears Holdings, filed for bankruptcy in October 2018. So Kmart now finds itself in

the same place it was 16 years ago: bankrupt, struggling with debt, and watching its sales shrink.

Its chairman, Eddie Lampert, has submitted a bid to buy Sears' debt, but Kmart's future is less clear.

This time, Kmart really could be...