Lessons From Kmart

Want to take some lessons from Kmart and the biggest retail bankruptcy filing in history last week? Try this: If you cut IT spending in the short run when business is bad, you're cutting off your own air supply. And try this: If you wait until times are good to loosen the IT purse strings again, it may be too late.

Yes, Kmart got squeezed between slightly upscale Target and deep-cut discounter Wal-Mart. Sure, its stores were old. Yeah, it used newspaper ads instead of TV commercials.

All those things hurt Kmart. But what did Kmart in was IT.

Or rather, the lack of IT. And modern logistics and supply chain management. And up-to-date in-store technology.

Want to know how bad things were? In 2000, when Kmart finally decided to invest in IT, the company bragged that the two-year, $1.4 billion upgrade plan was "more money than Kmart has spent in the last decade on IT."

That stinginess cost Kmart three CIOs in the space of five years in the 1990s. It also took away any hope of catching Wal-Mart, which was marching out of the South and into regions where Kmart thought it had already won the discount retailing battle.

Sure, Target was everywhere Kmart was. But Target was really a downscaled Dayton-Hudson department store - it would never reach any farther down. Kmart was an upsized S.S. Kresge five-and-dime store. And 10 years ago, across most of the U.S., Kmart had the low end of discount retailing all to itself.

At least until Wal-Mart arrived in town after town after town. Wal-Mart had cutthroat pricing, supported by solid logistics. And wherever Wal-Mart showed up, complacent Kmart lost. By the mid-1990s, Kmart was in trouble and losing money.

Kmart's response? The IT budget evaporated.

While Wal-Mart was pouring money into IT, Kmart's IT budget got smaller. And not just once, but several years in a row.

So while Wal-Mart's logistics and supply chain management got sharper, Kmart's stagnated. While Wal-Mart's IT staff grew, Kmart's shrank. And while Wal-Mart was able to squeeze ever more value out of its stores and its systems, Kmart lost ground.

In five years, Kmart went from being the IT leader in retail to an embarrassment. Kmart was not just an also-ran - it wasn't even in the race.

But Kmart still might have come back. When management gave the OK for that $1.4 billion systems overhaul in the summer of 2000, it looked possible. When freshly minted CEO Chuck Conaway hired former Deloitte Consulting retail maven Randy Allen as CIO in September 2000 and gave her responsibility for corporate strategic planning as well, a comeback actually started to look likely.

The money was there. The clout was there. And even when pilot projects with new supply-chain software began running into problems in early 2001, it still looked like Kmart could turn things around. It would just take a little longer.

Then the recession hit. And the clock ran out for Kmart.

Kmart may yet emerge from bankruptcy protection. If it does, it will still have all of its marketing problems, all of its business process problems, most of its IT problems - and a much tougher time dealing with all of them.

What Kmart won't have is any serious chance of challenging Wal-Mart or Target. That opportunity disappeared in 1996, when Kmart's IT budget dried up and blew away.

So in these lean times, when your CEO tries to sell you the idea that IT spending is mandatory in the long run but discretionary in the short run, remind the boss about the Kmart catastrophe.

Because whoever you are, you've got a competitor like Wal-Mart out there somewhere. And that means the short run may be the only chance you've got to keep your company in the race.

Frank Hayes, Computerworld's senior news columnist, has covered IT for more than 20 years. Contact him at frank_hayes@computerworld.com.

Copyright © 2002 IDG Communications, Inc.

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