Kmart was in the headlines this week as a Prudential Securities analyst downgraded the retailer’s shares to a ‘sell’ rating, prompting toldyouso analysts to suggest that the company ought to use Chapter 11 bankruptcy to restructure itself. One analyst at Salomon Smith Barney pointed the finger of blame at two other retailers, and urged Kmart to start shutting down some stores. “Since (Kmart) is still not competitive in regions where there are Wal-Mart and Target stores,” said SSB, “it should pack up a few hundred of those under-performing stores.” That’s just the advice that the Service Merchandise Company announced this week. The Brentwood, Tennessee-based company announced that it was holding going out of business sales at its 216 stores and would close down operations after the sale. The “soft economy” was blamed for the chain store’s demise, which will cost an estimated 8,300 workers their jobs. At one point, Service Merchandise was at the top of the catalogue-showroom business, but as financial troubles hit, it dropped some of its product lines, like electronics and toys. According to the Boston Herald, it wasn’t just a slow economy that hurt Service Merchandise, it was two other retailers. ” (The Service Merchandise format) “didn’t stand up well to competition from mass merchandising giants such as Wal-Mart and Target,” the Herald said. The common thread between Kmart and Service Merchandise is the cannibalism in the retail sector from the biggest giants, like Wal-Mart, which continues during the recession to take sales away from other stores. There was a last minute shopping burst just before Christmas that benefitted many stores, but to make sales, stores had to deeply discount prices, which hurt profit margins.“Few if any retailers will be able to keep pace with Wal-Mart,” said Moody’s investors service. According to Forbes.com, Wal-Mart’s gains “likely came at the expense of other retailers. ‘When Wal-Mart gets aggressive and price-competitive, it can take share,’ another analyst told Forbes. Customer counts show that Wal-Mart has added market share since the economy started softening. Based on an increase in of mid-week, after-work shoppers, Wal-Mart believes it’s attracting customers that don’t normally shop there. Analysts predict Wal-Mart will hit $216 billion in sales this year, and $241 billion in 2003. Forbes says that to counter fears that Wal-Mart has saturated America with stores, “it’s venturing into smaller communities with smaller stores…Never underestimate Wal-Mart’s ability to find new ways to grow.” “At Wal-Mart, we make dust,” the giant says. “Our competitors eat dust.” Service Merchandise, welcome to the dust bin.
Kmart is reeling, Service Merchandise is closing, and Wall Street points to Wal-Mart as the culprit. Those 8,300 workers at Service Merchandise can go apply for work at Wal-Mart, and CBS Marketwatch will count them as part of the 75,000 ‘new’ jobs that are ‘created’ this year by Wal-Mart. As these big firms roll up and die, and Wal-Mart gains more market share, it should be clear that this is largely a zero sum game, with no real economic development behind it. Wal-Mart and Target are NOT creating new jobs, they provide old jobs in new aprons. In addition, the dead companies leave behind empty buildings and parking lots, wasted land, and lost business for firms that relied on orders from Service Merchandise or Kmart. Consolidation is not the same as expansion. Town by town, this point is often lost on local officials, who don’t care if the mall the next town over dies. And as pricing power is consolidated in fewer and fewer hands, the consumer loses out as well.