Goal: Make An Immediate DifferenceBy Edward Cone | Posted 2001-12-10 Print
When Chuck Conaway took over as the chief executive of Kmart, he gave himself two years to resuscitate the discount retailer, get the right products on its shelves and make it competitive again with the new kings of general merchandising, Wal-Mart and Tar
Goal: Make An Immediate Difference
Conaway came into a company in decline and immediately made changes. He shook things up by luring talent from other companies, including Wal-Mart veteran Mark Schwartz, the chief operating officer highly involved in tech projects, and ex-CIO Randy Allen, who came from Deloitte. The famous Blue Light Special that defined Kmart's public image for years was revived, and Wal-Mart's "everyday low prices" message was cloned with a promise of "low prices every day."
The new team also pushed hard to clean up and modernize dingy stores and improve customer service. "Customer service is going to be at the top. We're going to measure that and we're going to tie incentives around it," Conaway said.
He instituted a system of regularly polling customers on their experiences and using their responses to create a "super service index" for each store. This metric has proven its worth. The 200 stores with the highest service scores record sales that are about 2% higher than the rest, he said during an August call with analysts.
As part of this effort, store employees were told to get serious about opening a new register whenever more than three people are in line. To help, new IBM cash registers and NCR self-checkout terminals were introduced at many stores. Now, customers in some stores handle 70% of checkouts.
"We're investing in more self-checkout registers. No one would have thought one year ago that Kmart would be leading in any technology initiative, but this is something we tested and really saw promise in," said Conaway to financial analysts at Kmart's second quarter earnings call. "Now, we're seeing our competitors follow our lead."
There are logistics and supply improvements, as well. The rate of in-stock items has risen to 86% at the end of October, with a goal of 90% by the end of January. In 2000, Kmart got rid of nearly 15,000 truck trailers full of excess inventory that had been left parked behind Kmart stores because there was no space in storage rooms, let alone on shelves.
Conaway says part of the reason Kmart could trim the "shrink" rate for lost or stolen merchandise from 3% to 2.5% was eliminating storage in those poorly-secured trailers.
Inventory got bloated, analysts say, because of the company's reliance on newspaper circulars during former CEO Floyd Hall's regime, to promote sales. Advertising specials on lots of different items each week meant pushing lots of new products into stores each week—and then hoping they'd sell.
"It was a culture out of control. The reliance on the circular became like a drug, with more pages and more items being added," says analyst Hood.
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