KMART (1899 – Present): The Story Behind the Rise and Fall of the famous Kmart Stores.

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Looking back, there is only a countable number of stores that stood out and were as popular as K-Mart. For me, stopping at Kmart was one of the few things I looked forward to on weekends out with my family. But sadly, such legendary stores like Toys “R” Us and Kmart never had a smooth ride, despite having some good days back in the 80s through to the 90s.

If you were lucky to have been a teenager around the 90s and early 2000s, then you must have enjoyed the goodies that Kmart and other related stores gave back then. Back then, the malls and such stores were still the things. And everybody wanted to buy their supplies from them. Thanks to the good customer services and variety of products that the stores offered.

Kmart remains one of the stores and businesses of the gone days that saddened me when they went down. Unlike many other stores, Kmart has managed to remain resilient for a while, and up and until now, some stores are still open for business. Most of the earlier stores were sold off while others operate under different names and management.

The coming of the pandemic in late 2019, did not make it any easier for Kmart and other stores. Such stores were the first to be hit by the pandemic’s containment measures. Most of the brick-and-mortar shops have had to either scale down operations or close completely because of the reduced number of clients. This has affected all similar businesses around the world.

Kmart was one of the most revolutionary supermarket chains of the previous century, but this long-lived dominance in the retail space came to an end when they filed for bankruptcy under Chapter 11. For a while now, Kmart has managed to remain afloat besides filing for bankruptcy.

Let’s take a look at how Kmart came into existence.

Background History of Kmart Stores.
Before we look into what really happened to Kmart, and what contributed to its failure, let's first look into how Kmart came into existence in the first place.

What is Kmart and how did it come into existence?

Kmart Corporation is an American big-box store chain, which has its headquarters in Hoffman Estates, Illinois, United States. It was founded by S.S Kresge in 1899 and renamed Kmart Corporation in 1977. In 1962, the first shop opened with the name Kmart. It operated 2,486 stores worldwide at its peak in 1994, including over 2,323 discount stores in the United States and a Mega Kmart Center location.

Kmart was a division of Sears Holdings Corporation and is now a Transform SR Brands LLC subsidiary between 2005 and 2019. While working as a traveling salesman, S. S Kresge met variety-store founder Frank Winfield Woolworth of Woolworth stores. He was at the time selling to all the 19 Woolworth stores at the time. Kresge spent his savings of over $6700 from his five-and-dime shop in Memphis, Tennessee in 1897.

He owned the first shop with John McCroy, who was his tinware client. The following year in downtown Detroit, Kresge and McCrory had added a second location. This was S.S Kresge’s first store. After two years as a partner, McCroy sold his share in Memphis, plus $3000 for complete ownership of the Detroit store, and formed the Kresge & Wilson Company with his brother-in-law, Charles J. Wilson.

Kresge opened eighty-five stores in 1912 with the S.S Kresge Company in Delaware. Kresge founded a new S.S Kresge Group in Michigan in 1916 and was in charge of the original business, and Kmart was at the time the new enterprise in Michigan. It was listed on the NYSE on 23rd May 1918. Kresge tried to raise the price cap in his shops to $1 during the first world war. By 1924, Kresge valued about $375 million and owned about $100 million of land.

Development was kept brisk at the beginning of the 20th century and 257 stores rose to 597 in 1929. In 1925, Kresge resigned as chairman. The great depression lowered profitability and contributed to the closure of the stores, which in 1940 was up to 682. Following the war, the trend of shopping shifted and many clients moved into the suburbs out of town.

Kmart in the 60s to 70s.
The first Kmart-named store which was called “bantam” Kmart by Kresge laid on 27,000 square meters of land and was intended to be a Kresge shop until later in the planning process, it was opened on 25th January 1962 in San Fernando, California. Just six months before Walmart opened. It was opened by S.S Kresge Group under the leadership of Executive Harry Cunningham. Sam Walton and Cunningham were inspired by Ann & Hope which made them visit in 1961. During that period, 16 more Kmart stores were opened in 1962.

During this decade, Kmart Foods, a now-defunct chain of Kmart supermarkets were launched. While Kmart branded stores have been opened, they still went by the official name S.S Kresge Company. Unfortunately, Kresge died in 1966 at the age of 99 years old.

When the first Kmart was opened, a few badly performing S.S Kresge stores were transformed into the new brand “Jupiter Discount Stores”, a barebones, deep discount store. In the 70s, Kmart kicked out many competing retailers. The stores like Kresge, Jupiter, and Kmart battled for the top position with most of the store chains at the time like Zayre, Ames, Bradlees, Caldor, Hills, and NMG-McCrory stores (McCrory, McLellan, H.L Green, J.J Newberry, S.H. Kress, TG&Y, Silver and finally, G.C. Murphy). S.S Kresge corporation changed its name officially to Kmart in 1977.

Kmart in the 80s.
Vice-Chairman Beard M Fauber was elected the Chairman and CEO of Kmart in 1980. In 9181, Kmart opened its 2,000th store. By the end of 1981, American and Canada had over 2,055 Kmart outlets. In 1987, the Kmart Company sold its remaining 76 Kresge and Jupiter stores in America to McCrory Stores and almost discontinued its brands, while Canadian Kresge and Jupiter stores were still operating until 1994.

In 9185, when the in-store cafeteria at the Canton, Michigan shop was turned into Wendy’s, Kmart was experimenting with co-branding. Kmart was the second-largest retailer in the US after Sears until November 1990, when Walmart passed it. The fortunes of the business started changing during the 1980s, many of Kmart’s shops were deemed obsolete. The office moved a large part of its attention from the Kmart stores into other businesses, such as Sports Authority, Builders Squares, and Waldenbooks which were started in the later 1980s to the early 90s.

Remembering the Blue Light Specials
Kmart was popular for the Blue light specials. These were short-time sales promotions in Kmart stores that were carried out during store hours. It was announced by spinning blue light like that of a police car. It was announced via the store’s public address system by the phrase “Attention Kmart shoppers”. This phrase became popular back in the days that it was the famous pop culture reference.

Unfortunately, the Blue Light specials were discontinued in 1991. Due to public demand, it was again revived in 2001, but it was again discontinued in 2002. The concept was briefly resurrected in 2005 again, but Kmart was not planning to apply the idea for the long-term. In 2009, Blue Light Specials were again revived but were limited to Saturdays with a surprise sale of one hour on selected items but it was stopped again. Once more, in 2015, the Blue Light Specials were revived.

When was the last time you went to a Kmart Store?
Attention Kmart shoppers! Do you remember the last time you went to a Kmart? Chances are it wasn’t a great experience or it was well over a decade or two ago. For many people, it used to be the go-to store. That phrase “Attention Kmart Shoppers” was a very well-known phrase back in the days.

It was associated with their blue light special, which was a really cool idea for its time. At random moments, the store would light up police car-type lights and announce a discount for a special item. People would just hang around the store for the announcement. It kept people in their store longer. It allowed them to push the merchandise they wanted to move, and it did wonders in getting the Kmart name and image in everyone's head. I would say the idea was genius and a huge success.

But this isn’t the case anymore. Nobody is hanging around Kmart anymore waiting for the blue light special announcement. Does Kmart even still run the blue light Kmart specials anymore? I am not sure myself. Kmart went from being the number-two retail store and everyone’s go-to place to what we have today.

So, what happened?

The man who started the Kmart chain stores was called Sebastian Spering Kresge. He started the company at the end of the 19th Century. In the beginning, there were stores that sold products for five and ten cents which were cheap even for the 19th century. The store was named after the founder and called Kresge. It wasn’t until 1962 when the actual first Kmart opened. It was in Garden City Michigan. The interesting thing about this first location is that it closed in 2017.

The Kmart stores expanded rapidly and by 1977 they were responsible for almost all of Kresge Company sales, which made the company change its official name to the Kmart Corporation. By the late 1980s, the company consisted solely of Kmarts.

In 1990, the Kmart logo that we are more familiar with today came to be. Soon after, they opened Sper Kmarts and Big Kmarts. It was also around this time period when Kmart made some big acquisitions. In 1990, they bought the Sports Authority and 22% of Officemax. In 1991, they increased their ownership of Officemax to 90%. And in 1992, they bought Borders books stores.

Though Kmart quickly sold most of its investments by 1995, in 2002, the company filed for Chapter 11 bankruptcy. That’s the reorganization kind where the company continues to exist. In 2004, Kmart holding corporation became Sears Holdings Corporation. It sounds like Sears Purchased Kmart, but it was actually the other way around. Kmart acquired Sears but still called it Sears holding corporation.

The Corporate Headquarters moved to Hoffman Estates Illinois before 1990, these were the two largest retailers in the US. The fact that they were even able to merge like this without government intervention in 2004, speaks to their decline over those 14 years. Another thing that speaks to the decline of Kmart over that time period, is the new logo they adopted during the merger. Which is the current logo for the past 13 years.

What Happened to Kmart?
That brings us to 2017, Kmart uses the new Kmart logo and still operates stores all over the world. So what happened to Kmart? Let us first look at the financials of the company. I know that looking at the financial statements and SEC files can be boring but I already looked through them and pulled out some of the most interesting parts. These numbers tell a story.
Obviously, there were problems even before the merger, enough to file bankruptcy in 2003 and to motivate them into the Sears merger soon after. But believe it or not, the real problems were yet to start. I want to look at the issues starting from 2006.

In 2006, Kmart and Sears are now one company, so it is hard to separate Kmart from Sears at times. In 2006, Kmart had over 1388 stores around the world, this number kept falling consistently, by the year 2016, they only had about 735 operational stores worldwide. This was cut by nearly half and so did their revenue dropped from over $18,647 to about $8,650 through the same period. And it has been dropping every year. Today it is well under half of what it was in 2006. The revenue isn’t just decreasing because of the reduced number of stores, each store on average is earning less as well. This is trouble, 11 years of contraction. And let's not forget that the numbers of 2006 that seem so high, actually aren’t.

Back in the later 90s, Kmart made more money. The time from 2006 to today saw a huge decline in the revenue. Even if you are not a professional analyst, you could probably conclude that Kmart wasn’t doing ok. But if you were a financial analyst, you would love their debt to equity ratios. For the select few of us who are not analysts, this is a common ratio that sounds much harder than it actually is.

All it does, it takes the company’s debt, like outstanding loans, and divides it by its equity, which is the money that is left over after all debts are paid. If you watch Shark Tank, you must have an idea what this is. It is almost all creditors want the company to have low debt and high equity. Therefore, you generally want this number to below. It varies in different industries. But a number below is generally considered pretty good. High numbers mean too much debt.

If you didn’t follow that, just know that high numbers mean the company is not doing too well. So let’s see how Kmart was doing using these figures. In 2006, the Debt to Equity ratio was 1.36, while in 2016 it was as low as -3.45. Up until 2010, the numbers were fine, but in 2014, they dropped to as low as -14.98 down from 7.37 in 2013. What happened is that the company started having negative equity. There is another phrase that doesn’t sound good. Negative equity is as bad as it sounds. It means the company does not have enough money to pay up its debts.

How it works, when most companies go out of business, they liquidate all their assets, take all their money from that and pay off any outstanding debts and then pocket the rest. If Kmart were to go out of business, they would sell all their assets and pay off all their debts and find out they don’t have enough to do it, and also there’d be nothing left to pocket. Just for a second, pretend your job is to decide if companies are approved for loans or not. You start viewing Kmart and learn that they cannot even pay off their existing loans. Would you grant them a new loan? This is why Kmart is struggling to get money.

Target and Walmart, which are big competitors of Kmart have a Debt to Equity ratio of between 1.38 to 2.11. The net income of Kmart has also been falling since 2006 and went to a negative since 2011. I know you hear a lot of things on the news like Kmart recorded negative earnings for over 6 years. Which is really bad. It is what leads to the death of such companies. It also makes people surprised that the Kmart malls still exist.
Kmart itself said, “ Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern”. This means Kmart itself is in doubt of its existence. Kmart and Sears are soon to be gone. They are just hanging on a thin thread. I cannot put a time period on it, but if you ever want to visit these stores again, I suggest you do it soon.

So What really happened to Kmart?

Here is why... people don’t want to go to Kmart anymore. Back in the day, if you wanted to run and get ingredients for a recipe, there was a high chance for people to go to Kmart. If you wanted to make a major purchase, you would go to Kmart as the first choice. This is not the case anymore. Now if you need something, you will go to Walmart or the local grocery stores. For bigger purchases, you would go to Home Depot or Best Buy. Or you would just go to Amazon, the internet is killing them all, but people still go to the store all the time. If I want to buy groceries, I will not go online, I will buy them from a store. But honestly, I wouldn't go to Kmart at the moment. It feels depressing. Walking into Kmart is like walking into a time machine.

If you want a blast from the past and you want to feel like you are shopping in the 90s, go to Kmart, they have not updated the look and feel of their stores. It will give you the nostalgic feeling of the good old days. This is a good thing anyway, just that it doesn’t give Kmart the revenue they would wish for. But maybe back in the 90s, they should have put some more focus on updating their stores and investing in themselves rather than purchasing other companies.
They lost touch with the customer, they stopped caring about them. The registers they use can’t be seen anywhere else. Forget touch screens, they still used monitors with an 8-inch screen that only displayed green text. These registers are not fast and make customers wait in line twice as long as any other store.

But this has not always been the story of Kmart. It was once the go-to store in the world. It usually had the best customer service and attendants. But this has deteriorated with time because they lagged behind. Basically, they stopped putting customers first, causing the customer to leave. In 1990, Walmart became the second-largest retailer. And over the last 17 years has left Kmart in the dust. I do remember going to Kmart when I was younger, It was a magical experience back then. But they needed to keep updating their services in order to stand out.

They were fantastic, the blue light specials were great, and when they said “Attention Kmart Shoppers”, it was exciting but even many of these people have given up on the store. They’ve lost their loyalists of customers. The Kmart that I remember doesn’t exist anymore, and probably will never exist in this capacity for much longer.

In Kmarts, 2006 annual report said, “ Our success depends on our ability to differentiate ourselves from our competitor with respect to shopping convenience, a quality assortment of available merchandise and superior customer service”. In the end, am not so sure they followed this, which led to the catastrophic fall of the Kmart stores as we knew them.

Final Thought
What recollection of the Kmart stores do you have? Did you get the chance to buy an item during the Blue Light Specials?