The Decline of Kmart...What Happened?

[Music] attention Kmart shoppers everyone think back to the last time you went to a Kmart chances are it wasn't a great experience or it was well over a decade ago for many people it used to be their go-to store that phrase attention Kmart shoppers that was a very well-known phrase [Music] 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 a police car type light and announce a discount for a special item people would just hang around the store waiting 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 heads I would say the idea was genius and a huge success but this isn't the case anymore nobody's hanging around a camera waiting for the blue light special announcement does Kmart even still run the blue light specials anymore you don't know do you 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 company was named Sebastian s 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 was cheap even for the 19th century the stores were named after the founder and called Kresge it wasn't until 1962 when the actual first Kmart open it was in Garden City Michigan interesting thing about this first location it closed in 2017 it doesn't come as a surprise to Jack he stopped shopping there years Paulie mr. Dyk they had I think it changed over the earth but I haven't bought anything there for quite some time 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 K Mart's in 1990 the Kmart logo that we are more familiar with today came to be soon after they opened Super K Mart's and big K Mart's 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 bookstores 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 well obviously in 2004 Kmart Holdings 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 United States 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 Kaymer over that time period is the new logo they adopted during the merger it's this this is their current logo one that's been used for the past 13 years but this logo is still more familiar to you isn't it shouldn't the current logo be the one everyone's more familiar with that brings us to 2017 the company uses this logo and still operate stores all over the world so what happened to the company first let's take a look at the financial state of the company I know that looking at financial statements and SEC filings could be boring but I already looked through them and pulled out some of the more interesting parts stick with me 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 hadn't even started yet I want to look at them starting in 2006 Kmart and Sears are now one company so it's hard to separate Kmart from Sears at times but here is a chart of the number of Kmart stores from 2006 to today and as a result of the number of stores being cut nearly in half over this time period here's their revenue every year since 2006 it's been lower every year and today it's 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 these numbers of 2006 that seems so high actually aren't let's add the single year of 1999 to the chart to compare yes so from the time of 1999 to 2006 huge decline the time from 2006 to today huge decline so even if you're not a professional analyst you could probably conclude that Kmart isn't doing great if you are a financial analyst you're going to love this next part we're going to start talking about debt to equity ratios for the select few of you who aren't analysts let me explain what this is it's a very common ratio that sounds much harder than it actually is all it does is it takes the company's debt you know like outstanding loans and divides it by their equity which is basically the money that would be left over after all debts are paid if you watch Shark Tank you know exactly what this is it's used by almost all creditors they want the company to have low debt hi equity therefore you generally want this number to be low it varies in different industries but a number below two is generally considered pretty good so high numbers mean too much debt if you didn't follow that just know that high numbers mean the company isn't doing too well so let's see how Kmart is doing in this department these are the numbers that encompass the entire Sears Holdings company so this includes Sears and Kmart s-- among a few other things up until 2010 the number was fine but then see this is the issue for three years it went up so high that I would guess that most creditors wouldn't want to touch this company remember we want numbers around two or lower we're up to seven point four then the next three years so it turned negative what happened what happened is the company started having negative equity there's another phrase that doesn't sound good negative equity well it's as bad as it sounds the company does not have enough money to pay off their debts how it works is 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 then go to 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 reviewing Kmart and learn that they can't even pay off their existing loans would you grant them a new loan this is why Kmart struggling to get money here's their debt to equity ratio compared to that of Target and Walmart I compare them to Target and Walmart because Kmart themselves mentioned them as big competitors in their annual report and I think we could all agree these are probably the two largest nationwide competitors when we compare these numbers Target and Walmart are actually comparable but then Kmart is just kind of off the charts we could take a look at their net income as well cuz that's the bottom line all right well it's bad as we would expect and actually negative since 2011 which is connected to their negative equity I know we hear a lot of things on the news like Kmart reported negative earnings for the sixth consecutive year and we just overlook it and think Oh bad news for Kmart well this is really bad this is the kind of stuff that almost certainly leads to the death of a company this stuff makes people surprised that they still exist at all here is a statement from a recent SEC filing from Kmart themselves it says our historical operating results indicate substantial doubt exist related to the company's ability to continue as a going concern the company themselves doubts that they can continue to exist based on these kind of numbers Kmart is soon going to be gone Sears as well these stores are hanging on by a thread I can't put a time period on it but if you ever want to visit one of these stores again I suggest you do it soon so what happened to Kmart I'm actually going to answer it this time it could all be brought back to one thing people don't want to go to Kmart anymore back in the day if you needed to run out and get an ingredient for a recipe there's a good chance you will go straight to Kmart if you wanted to make a major purchase perhaps a new TV or a new kitchen set camera would be the first place to look but this isn't the case anymore now if we need that ingredient will go out to Walmart or the local grocery store for bigger purchases we'll go to places like Home Depot tour Best Buy or we go straight to the Internet the Internet is killing them all but people still go to stores all the time if I want to do some grocery shopping I'm not going online I'm going to the store but I'm not going to a Kmart store honestly I don't even like being in a Kmart it feels depressing walking into camera is like walking into a time machine seriously if you want to blast from the past and want to feel like you're shopping in 1994 go to a Kmart they've not updated the look or feels of their stores as I showed you they don't have any money to do it either but maybe back when it was the 90s they should have put some more focus into 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 touchscreens they still use monitors with an 8-inch screen that only displays green text as you can imagine these registers aren't quite as fast and leave customers waiting in line more than twice as long as any other store this brings me to another issue the talent working the register no offense if you work at Kmart but you should quickly start looking for employment elsewhere a question for anyone out there who works at Walmart or Target or somewhere like this would you quit your job if given a job offer to work at a Kmart well I certainly hope not I'd hate to say it but this leaves Kmart with people that the other stores have refused and this isn't just the cashiers and workers in the stores this goes all the way up to corporate do you think any executives from those same stores want to leave their positions to work at Kmart they would have to pay really well and as we saw they can't afford to pay really well now this issue is the result of a spiral it didn't start the problem but it just adds to it what does Kmart have to offer I'd like to know what do they have to offer give me a reason I would go there over their competitors the prices aren't any better than most stores the environment is worse the employees are generally worse to deal with it takes longer they have some exclusive products like the Martha Stewart collection but Martha Stewart needs to have some pretty phenomenal products for me to go to Kmart to get them so what happened to Kmart the customer failed to come first and the customer left [Music] in 1990 Walmart pass Kaymer to be the second largest retailer and over the last 17 years have left them in the dust I do remember going to Kmart when I was younger I'm not going to lie and say it was a magical experience in the highlight of my week I remember it is just being another store there wasn't much that stood out about it but it was the place to go when you needed to buy stuff some people remember the stores being 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 they remembered doesn't exist anymore and probably won't even exist in this capacity for much longer here's a statement I pulled from Kmart 2006 annual report it says our success depends on our ability to differentiate ourselves from our competitors with respect to shopping convenience a quality assortment of available merchandise and superior customer service [Music] in the end I'm not so sure they followed this [Music] you [Music]

Channel: Company Man

Views: 4,192,576

Rating: 4.7762742 out of 5

Keywords: Kmart, Sears, Bankrupt, Closing, Sears Holdings Company

Id: 1__Qg1toSSs

Length: 13min 49sec (829 seconds)

Published: Mon May 15 2017

Reddit Comments

[u/norminthedorm]

What kind of crazy person pronounces the year 2002 as "twenty Oh Two"?!

[u/Walking_Bad]

Amazon

[u/14113bad]

Does anyone remember Hills Department Store?

[u/[deleted]]

I've only stepped foot in 3 K-Mart stores in three cities. All three were generally run down and unpleasant to shop in.