A Group-based Case Study (FOUR STUDENTS) Submission Date: 17th of February specific retail technology devices to improve managing its stores, unlike its competitors, which did not take that seriously until the mid-1980s. For example, in 1973, Walmart started to use computers in all its stores and connected them electronically with its suppliers in order to manage orders, inventory and supply operations. Thus, each supplier could login at any time to Walmart's information system in order to know the current stock level of the products that it supplies to Walmart, and then decide when the next order should be sent. As a result of that, Walmart nolonger needed to allocate financial and humanresources to managing each supplier's products. Walmart also invested in electronic cash registers and product barcode scanners to track thenumber of units sold form each item, thus updating the stock of that item regularly. Walmart vs. Kmart In 1962, the world witnessed the establishment of Walmart and Kmart, which were two competing retail chain stores. At that time, the owners of"Kmart" had a strong experience and backgroundin howto run retail stores because they were in the retail industry since 1899, while for Sam Walton the owner of "Walmart", it was his first experience. When taking into account this competitive advantage, it was expected that "Kmart" would be the leader in this field and that it would excelmore than "Walmart". For example, in 1963, a year after its establishment, Kmart had 53 retail stores, while Wamat was planning to open its second store. Nevertheless, Kmart's perfomance was disappointing for decades, which ultimately resulted in its bankruptcy in 2002, unlike Walmart, which has become the owner of the largest retail chain in the world with sales reaching $519 billion in 2020. Walmart Since the establishment of its first store, Walmart decidedto compete on price, so it targeted the low-income segment, and adopted the slogan Everyday Low Prices. This slogan covered a wide range of consumer goods such as foods, detergents, household items, and even electrical appliances. Accordingly, the brand image created by Wamart was that its prices were very low, compared to competitors, whichresulted in increasingits sales steadily. Although Walmart was targeting low-income consumers, a large number of middle and high-income consumers were shopping from it. This could be ascribed to selling high-quality products at low prices, in additionto its heavy investment in customer service, where it used to conduct intensive training sessions/courses for its employees, unlike "Kmart". This also helped in knowing the products that hadhigh and low demand. This process enabled Walmart to adapt/customize the assortment ofproducts sold by each ofits stores to suit the needs of the store's customers. In-store electronic cash registers were also linked to Walmart's warehouses, in order to speedup the process ofrefilling the shelves with goods sold from each store. Walmart also purchased a large number of trucks, which were responsible for transferring products from warehouses to stores. In addition, Walmart used technology aggressively in its warehouses, which were located near its stores, in order to tighten its grip on the process of moving products from warehouses to stores, thus reducing the costs of these operations. Such technologicalinvestments resultedin reducing 15% of the operational costs. It is worth noting that, Walmart's main competitor, known as "Kmart", began using technology in its stores in 1978, but only tookit seriously in 1994. This resultedin mismanaging Kmart's" inventory, as most ofits electronic cash registers did not contain updated prices ofthe store's products or they contained wrong prices, and a large portion of its stores' shelves was either empty or full of products that were not required by consumers. Kmart's" employees were also known to be extremely incompetent in planning and managing inventory. There were two reasons behind Walmart's ability to keep its prices low. First, the cost of establishing its stores was relatively low.comparedto competitors. The designs of these stores were simple and devoid of expensive decorations. Second, its outstanding ability to reduce storage and supply costs. In the early 1970s, Walmart bought expensive informationsystems and Regarding the expansionstrategy, Wal-Mart's strategy was based in the beginning on choosing places, which did nothave a strong competition such as small towns and rural areas. Such areas often contained small family-owned retail stores. However, this strategy was changed at the end of the 1980s, when Walmart decided to target major and large cities in order to compete with giant retail chains. At that time, "Kmart" was way aheadofWalmart. For example, in 1987, the were highly price sensitivei.e. whose loyalty was to the price, not to the brand name. On the other hand "Walmat" sent out such brochures once a month since the slogan of "Walmart" was and still is "every day low price," and therefore it did not need to reduce prices as 'Kmart' was doing In addition Walmart relied mainly on television advertisements, unlike Kmart, because at that time, 98% of American families had televisions in their homes, while the percentage of newspaper readers at that time was 63%, and was in a constant decreasing. number of Kmart" stores was 2.223 while that of Walmart was 1.198. Similarly, the sales of "Kmart" were $25.63 billion, while that of Walmart were $15.96 billion. However, in 1992, Walmart's sales ($32.6 billion), for the first time, exceeded that of "Kmart" ($29.7 billion). In that year, the number of Walmart stores was 1721, while that of "Kmart" was 2300. Since that year, Walmart's sales have been higher than "Kmart's" sales. Kmart At the beginning of the 1960s, Kmart used to sell products made bynational fims (manufacturer brands) at low prices. In order to support the low-price strategy, Kmart was famous for using The Blue Light Special, which was a suddenreduction onprices of certain products, for one hour, for consumers shopping inside its stores. However, Kmart stopped using this promotional tactic in 1991. In the mid-1970s, Kmart switched towards using a private label strategy, which entailed offering a wide variety of products under the name of Kmart coupled with reducing the number of products manufacturedby national fimms (1.e.national brands), in order to increase its profit margin. Kmart keptusing this strategyuntil its bankruptcy (2002), but according to experts in the retail industry, theuse of Kmart for its own brand name was not successful. This is becauseit did not invest enough to support its brand name, nor did it invest in creating a brand image that convinced consumers that the quality of its own products was equivalent to thosemanufactured by national firms. This period also witnessed a shift in Kmart's pricing strategy, as it followed the high-low pricing strategy, which entailed selling the majority of products at relatively higher prices comparedto competitors and selling specific products atlow prices and for a limited time (promotional pricing). In order to support this strategy, Kmart used print advertisements, where millions of promotional brochures and flyers were distributed weekly. The purpose of those brochures was mainly to tell consumers about the products that were on offer. Additionally, those brochures were attachedto newspapers, and then were sent by mail to millions of families in various Americanstates. Kmart allocateda budget of $500 million annually to implement this promotional strategy. This budget was considered relatively large at the time. In the mid-1980s, Kmart began selling exclusive brands through contracting with celebrities. For example, in 1984. Kmart contracted with (Jaclyn Smith) in order to put her name on fashion products. The prices of these products were relatively high which led to increase Kmart's profits significantly. The strategy of selling exclusive brands was used along with the private label strategy (i.e. selling products under Kmart's name). Additionally, in 1986, Kmart launched a campaign to promote its new slogan, known as (The Savings Place). At that time, the real competition was about to begin between Kmart and Walmart as the latter decided to conquer the big cities in order to expand its chain of stores. To respond to that in the early 1990s, Kmart increasedit contracts with celebrities. For example, it signed an agreement with (Martha Stewart) to put her name on home kitchen appliances and home garden supplies, which were sold in it chain of stores. Although the strategy of selling exclusive brands increased Kmart's sales, it was not sufficient to stop the steady growth of WalmMart. Kmart also contracted with well-known brands such as Joe Boxer and Disney in order to sell their products, which were relatively expensive. As the competition with Walmart intensified, Kmart decided to use a specialized retail strategy to diversify its sources of income. This strategy resulted in acquiring other retail chain stores, which were specialized in selling specific lines of products. For example, it acquired OfficeMAX chain stores for office fumiture, Borders-Walden bookstores for selling books, Sports Authority chain stores for selling sports equipment, and Builders Square chain stores for selling building materials. All these stores were run by Kmart along with it chain of stores, which were specialized in selling consumer goods. However, in the mid-1990s, Kmart sold all the stores that it acquired, as they did not achieved the projected profits. Kmart was also known forits extensive use ofprint advertisements much more than its use of visual advertisements. Further, the majority of Kmart's promotional activities focused primarily on promoting products, which prices were reduced, instead of focusing on creating a strong brand name in consumers' mind Such promotional activities often attracted consumers who Two years before declaringits bankruptcy,i.e.in 2000. Kmart reduced its promotional budget significantly, which was focusing on the use of print ads and brochures, and switched to the "everyday low prices" strategy in order to be able to compete with "Walmart". In this regard, Kmart reused "The Blue Light Special strategy andpromotedit through TV ads. However, this strategy resulted in a loss of $2.4 billion, due to losing a large number of consumers, who were highly price sensitive andwho were usually attracted by Kmartthroughprint ads andbrochures. Immediately afterthat, Kmartrepositionedits brand name as a lifestyle brand. To support this new positioning, it launched the slogan "The Stuff of Life" in its promotional campaigns, which was its last attempt before declaring bankruptcy. Regarding the target market, Kmart was not specializedin targeting specific consumer segments, unlike Walmart. Specifically, Kmart it had a large number of low price products and a large number of high price products. The aim was to target all consumer segments. However, this strategy created a state of ambiguity and confusion among consumers on whether Kmart was a prestigious brand or a low price brand. Further, Kmart's expansion strategy was completely different from that of "Walmart", as Kmart since its inception establishedits chain of stores in major cities and high-end neighborhoods in order to compete with the giants retail stores. This expansion strategy was successful in the beginning asit gave Kmart the "first mover advantage" andit was the reason for its strong fame. However, at the end of 1980s, a process of urban development took place. That is, the neighborhoods of those cities became old, which led the residents of those neighborhoods to move to new areas. This was a huge problem for Kmart, butit wasn't a problem for "Walmart". The reasonbehindthatis that Kmart investedbillions of dollars in order to establish its chain of stores in those cities, which later became old. This means that Kmart became stuck inside those cities and that its chain of stores was no longer attractive and profitable as it used to be. Additionally, establishingnew stores would be very costly and there were insufficient resources to support the expansion process into the new cities due to the continuous decreasing in sales in the majority of its stores. Kmart thought that its brand name was strong enough to attract customers who moved to the new neighborhoods, andtherefore, it did not even think of selling its old stores and moving to the new neighborhoods, which became the new reality and the backbone of the economy. In addition the expansion of Kmart in the old cities led to building stores with narrow spaces and crowdedinterior design, as the shelves of these stores were very close to each other, and the pedestrian path between these shelves was alsonarrow. On the other hand Walmart" did not encounter any of these problems, because its expansion towards the main cities begun in the early 1990s. Walmart" did not also expand inside these cities, but rather, expandedon the outskirts of these cities in order to take advantage of the spaces on the outskirts andto be able to build carparks. Such advantages do not exist inside the main cities given that the spaces within such cities are often narrow and the prices or renting or buyinglands are much more expensive compared to those on the outskirts. 4. Although "Kmart" had the "first mover advantage", it declaredbankruptcy in 2002. What are the strategic lessons that can be leamed from that