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The blue light special

April 20th, 2009 at 07:02 am

Stock-related entry. Read at your own risk. Big Grin

I was at a K-mart (or Kmart) over the weekend, and as I strolled across the remnants of a once mighty discount business that could have stood toe-to-toe with Wal-mart, I wondered just what happened to them?

Although wikipedia's information should always be taken with a grain of salt, I nevertheless found it quite informative. Gleaned from wiki's entry, there are several important insights as to why the business have failed:

"In the late 1980s and into the 1990s, the corporate office shifted much of its focus from the Kmart stores to other companies it had acquired or created...."

So, right off the bat, K-mart appears to be doomed the moment management lost interest in this business....

"Unlike its competitors Wal-Mart and Target, it had failed to invest in computer technology to manage its supply chain."

Perhaps, due to the above reason, it did not evolve to become as efficient its competitors.

"Furthermore, Kmart maintained a high dividend, which reduced the amount of money available for improving its stores."

I couldn't look up on what exactly was the historical percentage, but here's a classic example of how sustained high dividend isn't always a good thing....

"In a scandal similar to that involving Enron, Conaway and Schwartz were accused of misleading shareholders and other company officials about the company's financial crisis while making millions and allegedly spending the company's money on airplanes, houses, boats and other luxuries."

Management has always been a key factor one needed to look at, but as an individual investor, I know that if I was looking at them at the time before the scandal, I could not have predicted that it would come to this. Sort of goes to show why stocks can be such a risky gamble, because things can still go awry even when you research everything....

"On May 6, 2003, Kmart officially emerged from bankruptcy protection (...) Lampert took control of the company and began to run it for profit instead of sales.

So, I assume this part is why K-mart is no longer known for its discount prices and blue light specials, and by now, we all know it's stuck between a rock and a hard place against Wal-mart and Target.

In hindsight, there's so many good lessons here for investors to take away from. None of them are terribly difficult, and chances are, you may already know about them. Still, these signs are important enough to keep in mind, and it especially hits home for me whenever I walk through a K-mart....

5 Responses to “The blue light special”

  1. Joan.of.the.Arch Says:

    As a shopper I can think of some other things that led me away from Kmart, and which would make me not want to buy their stock. They have some reputation for age discrimination. I and people I talk with said they would very often not have on the shelves the sale items they advertised. That could be evidence of the supply technology you mention, but managers could be talked into bringing out the sale items from the back, but only the number that I personally wanted to buy. Any others stayed in the back. The stores closest to me had the all time rudest employees I'd encountered in any discount store. I have waited for as long as 45 minutes in the cashier's line to make a purchase. They always kept their dressing room locked and I had to walk to the service desk to ask for it to be unlocked, then wait again at the dressing room for someone to show up. They kept reducing their stock of tools and items for home repair and painting. They allowed their nursery stock to dry out and had no cashier in that area, forcing me to lug a potted shrub or tree through the store if I wanted to buy it. They are constantly advertising a clearance sale which feels schlocky and misleading. They do not necessarily put prices on items, or on the shelves. The quality of all sorts of things they sell has gone down, down, down, even though it is not as though they ever started with high quality. Some Kmarts are really messy and dimly lit, to boot....In short, [b]Kmart is a pukey place.[/b} :-P

  2. Joan.of.the.Arch Says:

    Oops, let me clarify: Kmart is a pukey place. :-P

  3. Broken Arrow Says:

    Tell us how you really feel about the place. Big Grin

  4. Ralph Says:

    I agree - K-Mart just exudes a "We don't care attitude". Their checkout lines have fortunately improved, but in the past I can't remember the amount of times that I just abandoned a cart rather than keep waiting. The lines would ALWAYS jam up with a price check. And it hurts to spend all that time picking out stuff and then having to abandon it! In comparison, Wally Mart and Target are much cleaner and better run.

  5. baselle Says:

    Since Kmart and Sears are linked, most of the issues that you've blogged about for Kmart apply to Sears also.

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