K-Mart Analysis

Discount retail has evolved into a highly competitive industry. As a result, discount retail pioneer Kmart, faltered and fell into Chapter 11 reorganization. Emerged from that reorganization by merging with Sears and forming Sears Holding Corp. and is faltering again.

Relevant Industry Forces
Entry Barriers
Entry barriers in the discount retailer industry are high. In order to compete with the likes of Wal-Mart and Target, a company would need a minimum efficient scale to compete on cost. To Kmart’s advantage, it does benefit from a certain amount of economies of scale. The company is still the third largest retailer in the U.S. When the Bankruptcy restructuring plan was implemented, Kmart emerged with 1,500 stores remaining. But Kmart has to realize, “Everybody today lives under the shadow of Wal-Mart.” Kmart should not fool itself into thinking that its economies of scale in purchasing or its distribution system can compete with Wal-Mart’s. Wal-Mart is known for its expansive, powerful, and efficient inventory and distribution capabilities. It’s also known for its low-cost structure from real estate to labor (non-union). Wal-Mart is now one of the leading buyers of consumer products in the world. Wal-Mart claims it has the biggest private satellite communications network in the U.S. The system links stores to headquarters in Arkansas by voice, data and video. Suppliers can tap directly into Wal-Mart's computers, where its system tracks sales of every item-improving inventory controls and cutting costs. Kmart has tried to copy Wal-Mart’s technology prowess in the past, but have failed to implement properly.
Wal-Mart is not the only behemoth Kmart has to contend with –Target, as well as Wal-Mart has been growing even larger, partially thanks to Kmart’s bankruptcy. "Kmart's loss is Wal-Mart's and Target's gain.

Another problem for Kmart’s emergence out of bankruptcy was the loss of many of its customers to other discount retailers such as...