More on General Motors


Here is a dispatch from frequent e-mail correspondent Ironman from Connecticut:

I note with interest your latest GM post. It seems they closely track another Michigan based behemoth, Kmart.

In the 1970s and 1980s, Kmart was the 800-pound gorilla in retailing (I know as my parents ran a market research firm that kept trying to get data on what they were up to). They had basically locked up the blue-collar and middle-class postwar suburbs in the industrial Northeast and Midwest and had a major presence in the larger metro areas of the South and West. Only small rural towns, some large central cities, and the chichi northeastern suburbs were beyond their limits.

Then the 1990s hit and Wal-Mart emerged from the small towns to start taking on Red State suburbs as home turf. For some reason the peril of allowing market leadership in places like Atlanta and Orlando eluded Kmart management. Then the Bentonville boys, having gained the upper hand in the fast growing parts of America, eclipsed Kmart and brought their economies of scale to bear against Kmart's Midwestern base. Along the way single-focused "category killers" like Home Depot, Bed, Bath & Beyond, and Sports Authority stole massive numbers of shoppers, especially in more-upscale markets.

Kmart responded by a few strategies reminiscent of GM: reliance on outdated rust belt locations, an unwillingness to close failing facilities, a decision not to reinvest in the core business and to pay dividends, reliance on preserving market share with older, less affluent consumers at the expense of building the "brand" with younger, future upscale [consumers] (Kmart even featured the 90-plus-year-old Bob Hope in its national TV campaigns, someone horrendously irrelevant to younger, nonwhite and/or hipper consumers), and toward the end, massive discounting in a futile effort to win a price war with a cash-rich competitor.

When Kmart finally declared bankruptcy, it was widely reported that Wal-Mart was now the dominant retailer in Michigan, their home state, and shoppers bemoaned that they "had owned the State of Michigan and lost it," mostly because of their tired stores and poor selection of merchandise, which had driven away formerly loyal shoppers.

So, after investors lost their shirts, Greenwich financier Eddie Lampert took the firm out of bankruptcy, got some things done like making the stores and merchandise more presentable, and promptly bought Sears (another struggling Old Economy Rust Belt centered retailer, with its own parallel to GM, becoming incredibly dependent on appliances, hardware, and auto service a la GM's addiction to SUVs) to gain adequate economies of scale to stay viable.

So, I expect GM to go bankrupt, to be scooped up by a financial turnabout whiz, and to get merged with Ford. Since the parallel is so clear.

The Kmart headquarters is at the corner of Big Beaver and Coolidge in Troy. When I was in my teenage years, this land was a square-mile farm owned by the grandfather of a schoolmate. Now, the land has seen Kmart's rise and fall. Across the street is Somerset Mall, the premier high-end mall in Michigan, with Saks Fifth Avenue and Neiman Marcus as key tenants.