Strategy du Jour
In 1962, the year that the first Kmart and Wal-Mart both opened, the business models of both companies were the same—selling nationally advertised brand names at lower prices than department stores. Both companies were founded by charismatic men, Sebastian Spering Kresge and Sam Walton, respectively, who recognized the consumer's growing preference for discount goods, were committed to a national presence for their stores, and were frugal to the bone. Both came from dime and variety store beginnings, Kresge through his S.S. Kresge chain and Walton through his ownership of Ben Franklin locations; both took on early business partners; and both appeared to truly value the contributions of their employees, providing leading profit-sharing and benefit programs for workers. Wal-Mart has remained true to that vision, but Kmart has veered off course in a variety of ways, and at a number of times.
Wal-Mart clearly defined its business model—sell a large inventory at rock-bottom prices to customers in rural areas— and made significant investments in its infrastructure early on. Kmart, in contrast, decided to establish its stores in higher-rent urban areas and its blueprint for growth was opening new stores—an average of 200 a year. But opening new stores did nothing to grow sales at its existing stores, which languished.