Kmart Back in the Black and Rumors Swirl About Its Future

Kmart’s first profitable quarter in three years put it back on the retail radar and reignited speculation over a Kmart/Sears merger.

Richard Hastings, credit economist at Bernard Sands, said there “is so much misunderstanding about what is a comparable-store sale. Does it directly correlate to net profit? No, not at all. Kmart’s comps might be down, but the company is generating more dollars from the sales. The liquidity that Kmart has means it is not going anywhere anytime soon. “Possibly, one day down the road, Wal-Mart will hurt them terribly, but for the next 20 months, this retailer is not going anywhere.”

Hastings said Kmart “is not going to blow through $2 billion in 60 days. The retailer has the same Kmart name, but it is a totally new culture with new management.”

The economist, who recently chatted with Kmart officials, noted that the company’s focus is on carving out a niche as an ethnic merchandising discount department store, paying close attention to basic, high-margin goods.

Does he think Kmart is out of the woods?

Walter Loeb, a retail consultant of the firm that bears his name, isn’t so confident about Kmart’s future. “The quarter’s results disguise the true momentum at Kmart. One year from now it will be a different story. The numbers are good because it reflects the [ridding] of old inventory when it came out of bankruptcy,” Loeb pointed out.

Outside of cosmetic changes, retail consultant Therese Byrne said she has yet to see meaningful, coherent change in infrastructure — specifically personnel, sourcing and IT, a Kmart Achilles’ heel for decades. Without that, she said, Kmart’s operations are akin to a “Hollywood set.”

“It’s fake retail, like Montgomery Ward before they went under. They are still the old Kmart in that they think they can do without systems,” she said.

George Whalin, ceo of Retail Management Consultants, was willing to cut Kmart slightly more slack. He warned against overemphasis on the 13.5 percent comp-sales drop because pre-bankruptcy comparisons are inexact.

“At this point, comp sales aren’t terribly significant. The question is: Are they building on the business?” he said. “If they can show improving sales month to month, they have a chance of turning this thing around.”
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