TOPICS > Economy

Retail in America

January 25, 2002 at 12:00 AM EDT


RAY SUAREZ: There were two notable developments in the retail sector in recent days: The bankruptcy of discount giant Kmart and the death of upscale merchant Stanley Marcus. Marcus, who died Tuesday, was the longtime chief executive of the Dallas-based department store Neiman Marcus. He helped transform Neiman’s, founded by his father Herbert Marcus in 1907, into a leader in high-dollar retail. Today the Neiman’s empire includes $3 billion in revenue, 32 Neiman Marcus stores from Honolulu to Boston, and that famous Christmas gift catalogue, a Marcus creation, known for its sometimes outlandish selections of rare and high-priced gift items.

Kmart, which filed for bankruptcy last week, the largest ever of its kind, occupied the other end of the retail spectrum, the mass discounter. Kmart was founded in 1899 in downtown Detroit as the S.S. Kresge Company. It employs more than 275,000 people, many of whom are now waiting for layoff notices, and includes more than 2,100 stores.

RAY SUAREZ: Kmart is expected to close some stores in the coming months. Most will remain open while the company goes through bankruptcy proceedings. Joining plea to discuss Kmart and the legacy of Stanley Marcus is Nancy Koehn, a retail historian and professor of business administration at Harvard’s business school.

Well, the budget and discount category seems to be going great guns in some of the retailers. What happened to Kmart?

NANCY KOEHN: Well, that’s a great question, Ray. I think it really, like many, many retailers in the past, got caught in the middle between Wal-mart, if you will, playing the price game very well, and at the upper end, Target, or Target, appealing to budget-conscious but also style-and fashion-conscious consumers. And there was Kmart with, in some sense, a good portfolio of brands from Martha Stewart to Jaclyn Smith, Mario Andretti merchandise in the 1980s, but without a compelling, clearly defined value proposition for consumers, without consistently great service, and really without a differentiated reason for consumers to choose Kmart over Target or Wal-mart.

RAY SUAREZ: But Kmart was a pioneer in this category, wasn’t it?

NANCY KOEHN: It certainly was. And that’s what’s so interesting and, in some sense, ironic about the Kmart story. Sebastian Kresge really founded what became Kmart in 1899, way ahead of his time, marketing merchandise at a dime and a nickel in Kresge toy stores and in Kresge five and dimes. And he parlayed that into one of the most successful retail chains in the early 20th century, saw it through the Great Depression, saw it through the move to the suburbs, and then moved into the mass discounting in 1962, incidentally, the same year that Wal-mart and Target were founded. And brought Kmart to the fore, where it succeeded very handily through the 1970s and well into the 1980s only to really stumble quite significantly in the last decade, faced with increasing competition and busy, time- pressed consumers.

RAY SUAREZ: One difference between Kmarts and Wal-marts is that you’re likely to find a Kmart near an urban center or in a downtown business district.

NANCY KOEHN: Yes, you are. And of course, you know, as demographics shift helped America to the suburbs and out of the cities, Kmart, like Woolworth’s before it, in some sense like Montgomery Ward in some locations, suffered because of that.

RAY SUAREZ: Well, does that give them an anchor of something they can build on for the future?

NANCY KOEHN: I think they have a number of anchors, Ray. I mean, a lot depends on, you know, short-term survival issues like liquidity, like Kmart’s relationship with its vendors and suppliers. But they have some great assets. They have this fabulous, rich, historically incredible brand, you know, real estate, in some sense, in consumers’ hearts and heads. The blue light special, like the Kresge luncheonette, is really part of American culture. It’s etched its way into our hearts and minds, and many, many millions of consumers today grew up knowing about Kmart, going to Kmart thinking of it as part of their daily or weekly lives. That’s a terrific asset. How and if Kmart can really exploit that and then execute on the promises of that brand is really an interesting and important question for the future.

RAY SUAREZ: Well, you talk about the historic associations. Once a brand has lost some of its luster, when it’s begun to sag in its public profile, can you polish that up, make it positive again?

NANCY KOEHN: Well, if recent history serves as any guide, the answer is yes. Think about a brand like Berber or a brand like Gucci or a brand like Keds, all rich brands of the past that seemed to fall into some kind of moribund or less than dynamic, exciting competitive state. But all of those brands in the last decade have really been revitalized, you know, through a combination of brand redefinition, new merchandise, new styles, in the case of Keds. And they really all come back very vibrantly, building again on historic associations, on that tradition and the relationship that consumers had with it, but then updating it and changing the promise a little bit to meet consumers’ needs today, and then again, delivering on the promise that they make.

RAY SUAREZ: Well, one name that didn’t lose its luster was Stanley Marcus. This week an obituary writer called him one of the last great garment retailers in American business. How did he earn that accolade?

NANCY KOEHN: Oh, a number of different attributes, I think, and achievements, Ray. He was really a great merchant prince from his very early years in the business. He had an eye for style, a fine editing eye for merchandise. And think about what merchants really do. The value they add is not just in the environment of the store and in the service they provide. It’s also in the eclectic, unique and very appealing mix of goods and services that they gather. He was great as a merchant. He was also a brilliant strategist, and he understood a great retail enterprise can’t grow and prosper without attention to the big picture: Where are consumers going? Where is the competition going? What’s in, what will be in tomorrow? What is classic elegance? And attention to the small details, the little promises that you make consumers — Marcus once said he wanted Neiman Marcus to be the store where a consumer could find anything they wanted. And he delivered on that promise in all kinds of ways. For instance, he once helped a consumer find out Queen Elizabeth’s shoe size was so that consumer could send her a pair of silk stockings and a pair of shoes. He once traveled to St. Louis to deliver a fur coat to a consumer that couldn’t get to Dallas. He once allowed a credit card customer to pay their bail charge using a Neiman Marcus credit card. He was all about understanding the small and minute promises and needs of consumers, and also moving his enterprise and his staff and his vision always into the larger picture of the future.

RAY SUAREZ: Well, at a time when American retail was still dominated by giants like Sears and Montgomery Ward and smaller regional department stores, he took the store way up market. Was that prescient, was it a look at the marketplace that figured, "all right, well, if we’re going to dominate any niche, it’s going to be this one"?

NANCY KOEHN: Again, a great question. I think it was probably a little bit of both. I mean, think about it. He’s in Dallas. It’s 1926 and ’27. He’s a young man, you know, in his early 20s and he sees that this southwestern economy, long before any of us would talk about a rush to the sunbelt, is beginning to boom on oil, on cotton, on other commodities. And he realizations that a newly wealthy group of consumers is on the rise, a group of consumers that’s not really being served by a whole lot of other department stores and retailers because they’re simply not in the south. So some of that is really sociological prescient. But he’s also just a great gambler or gamester. Great capitalists, great retailers always are about placing more smart bets than losing wagers. And Marcus, all through his life, from his gambit in the outrageous and wonderful his- and-her Christmas catalog gifts, the prestige items, to his Neiman Marcus fashion shows, fortnights that were extravaganzas unto themselves, to again, the move to make his merchandise not just for the elite customer, but also for the aspiring, middle-class customer. All those were smart bets, as well as, in some sense, a prophetic vision.

RAY SUAREZ: Nancy Koehn, thanks for joining us.

NANCY KOEHN: My pleasure, Ray.