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Kmart Will Face Test in Branding


Now that Kmart Corp. clearly has the attention of shoppers, what ad message will the retail chain deliver to consumers to keep them coming into its stores?

Wal-Mart Stores Inc. uses marketing muscle and state-of-the-art inventory controls to make good on its promise of everyday low prices. Target Corp. has built a reputation for trendy but reasonably priced merchandise. But Kmart has struggled for years to build a solid brand image that clicks with shoppers.

Kmart's highly publicized bankruptcy filing will generate a brief window of opportunity among shoppers who believe that it will initially lead to lower prices. But savvier shoppers, particularly those who worry about getting refunds, clearly will use the bankruptcy filing as an excuse to abandon Kmart.

Kmart's managers must fix the chain's broken parts, such as its distribution and inventory management system, before cranking up the volume on advertising, marketing experts say. "Nothing will kill a poor product faster than good advertising," cautioned Michael Belch, a marketing professor at San Diego State.

In recent years, the company has spent about $2 billion to fix an antiquated distribution and inventory control system that continues to sap profitability by failing to keep shelves stocked. Kmart also has struggled to cut ad costs by reducing its dependence on newspaper ads.

Kmart relies heavily on such shoppers as Nilda Zuloaga, 73, who Tuesday pushed a cart littered with Big K newspaper advertisements through the store. "All the time I bring these," the Eagle Rock resident said, pointing to circulars promising low prices on Folgers coffee and bedsheets.

This last holiday season, Kmart cut advertising expenses dramatically, instead emphasizing its BlueLight Always price strategy that mirrors Wal-Mart's promise of everyday low prices. But when Kmart cut back on newspaper circulars, sales plummeted.

The $2.1-billion cash infusion announced Tuesday by Kmart gives the chain breathing room as it tries to reorganize its debts under Chapter 11 of the U.S. Bankruptcy Code. But it's uncertain whether the package will be large enough to support Kmart's big ad expenses.

"Money is the big problem--where are they going to get all the money they need?" said John Hansen, a San Francisco bankruptcy attorney who has represented high-profile retailers. "You need funding to keep the shelves stocked, but if you don't advertise, you don't get customers."

Kmart must move to calm vendors that, in recent days, began to demand cash upfront before making deliveries. "The tightrope that every vendor walks is making sure you don't continue to ship products if it turns out that you're not going to get paid," said Dale D. Achabal, a marketing professor at Santa Clara University.

Even if Kmart can repair its inventory systems and wean shoppers from the newspaper circulars, the new Kmart management team led by turnaround veteran Chairman James B. Adamson faces the longer-term challenge of crafting a solid image for Kmart that won't conflict with Wal-Mart's role as price leader and Target as the trendy alternative.

Kmart might try to build on its relationship with Martha Stewart and search out other attractive brands that will lure customers into its stores. But "building a portfolio of better brands is a lengthy project," said Jeff Parkhurst, a director with Interbrand, a New York-based consulting firm.

And as Kmart begins to craft its post-bankruptcy advertising messages, it's likely that Adamson will emerge as a spokesman, much as Lou Gerstner became the public face of IBM during its restructuring and Gordon Bethune spoke out for Continental Airlines after it entered bankruptcy.


Times staff writer Laura Loh contributed to this report.

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