Kmart customers react to bankruptcy filing

GRAND RAPIDS, Mich. -- Larry Guydon remembers when Kmart was premiere discount retailer in town, long before Target and Wal-Mart stores began multiplying across America.

But stiff competition in the increasingly cutthroat retail environment caused Kmart to lose its foothold on the sector and slip into bankruptcy.

"I figured it's the new stores doing it to them, like Wal-Mart and Target," said Guydon, a 48-year-old machine operator from Grand Rapids and longtime Kmart customer. "More competition. There wasn't that much competition when Kmart started."

With the bankruptcy filing on Tuesday, Troy, Mich.-based Kmart Corp. becomes the nation's largest retailer to seek shelter from creditors under Chapter 11. The company, which has about 275,000 employees, said it hopes to emerge from bankruptcy in 2003. The company may have to close many of its underperforming stores.

While acknowledging the need for drastic store closings, Bert Flickinger III, managing director of Reach Marketing, a consulting firm, fears that Kmart will run the risk of further losing its customers to competitors during its retrenchment period. Target is expected to open at least 100 stores, while Wal-Mart plans to open at least 600 stores over the next two years, he said. That number could now be accelerated, he said.

"Its competitors will be closing in to try to capture as much Kmart business as possible," Flickinger said.

Kmart grew the fastest among the Big Three retailers, and by 1976 had 1,206 stores. Wal-Mart had 153 stores and Target 52 at that time.

Wal-Mart Stores Inc., the world's largest retailer, has successfully carved out a niche as the lowest-price operator, while No. 2 Target Corp. is known for fashion and home furnishings. Kmart has tried to stay competitive by joining in powerful licensed partnerships with Martha Stewart, Walt Disney and Sesame Street.

"What makes people come to your store ... is the type of merchandise that you yourself have exclusively," said Ulysses A. Yannas, an analyst with Buckman, Buckman & Reid.

But many analysts believe Kmart's strategy still lacks clarity.

"I think it will be extremely difficult to pull out of this," said Kevin Murphy, a research director of retail operations at Gartner G2, a research firm. "They continue to be pressed by the expansion of Target and Wal-Mart. In order to compete going forward, they need to find some point of focus."

Frequent Kmart customer Jim Hudson says he knows what the nation's third-largest discount retailer must do if it hopes to successfully emerge from bankruptcy.

"Kmart needs to keep their prices lower than all the rest of the stores," Hudson, 42, said Tuesday as he headed to his car in the parking lot of a Big Kmart in Cutlerville, a Grand Rapids suburb.

As teacher Deborah Street headed into a Kmart store, she said she was unaware of the retailer's financial woes until hearing a radio report a few hours earlier. But she was aware that Kmart had closed an underperforming store in nearby Walker in 2000. It was one of 72 U.S. stores in 28 states the company shuttered that year.

Near St. Louis, supermarket butcher Robert Cason scrambled to his local Big Kmart -- perhaps prematurely -- to see if the bankruptcy filing meant instant bargains.