Walmart

Loss Leader: How Wal-Mart Outdid A Once-Touted Kmart In Discount-Store Race --- When Antonini Took Over,

His Chain Was in Front; Walton's On-Line Bet --- Shabby to Chic -- and Back

By Christina Duff and Bob Ortega

Staff Reporters of The Wall Street Journal

03/24/1995

The Wall Street Journal

A1

(Copyright (c) 1995, Dow Jones & Co., Inc.)

Was Sam simply smarter?

The forced resignation Tuesday of Joseph Antonini represents an official verdict. For seven years, he led a discount store

to battle against what appeared to be its twin. The two chains looked alike, sold the same products, sought each other's

customers. They even dated back to the same year -- 1962 -- and bore similar names: Kmart and Wal-Mart.

The competition, however, is over: Sam Walton's Wal-Mart Stores Inc. won.

So bleak are the prospects for Kmart Corp. that in February an advertising agency bidding for its business, N.W. Ayer &

Partners, recommended that it stop competing against Wal-Mart and transform itself into a big convenience chain where

customers could go for milk and cigarettes. "It seems that the only way for [Kmart] to survive is to find a different niche,"

says one person familiar with the presentation. Kmart rejected the idea.

Though a savvy new leader could spark high hopes for ringing cash registers, Kmart still has "major operational and

managerial issues to deal with," says Marilyn Weinstein of the College Retirement Equities Fund, a Kmart shareholder.

While an air of inevitable defeat had recently settled over Kmart, a short look back finds many observers believing deeply

in Kmart and Mr. Antonini. In fact, many of the investors who demanded his ouster as president and chief executive officer

this week gambled on him to outfox his counterparts at Wal-Mart not so long ago. They questioned some of the strategies

of Mr. Walton, Wal-Mart's founder. They also thought Mr. Antonini had more pizazz, better locations and a solid

turnaround plan.

"He's taken a tired, dispirited company and revived it," declared a prominent retail analyst in a 1991 Forbes magazine

article that described Wal-Mart's stock as overpriced and Kmart as a good bet.

Considering the similarity of their stores and missions, analysts attribute the different fates of Kmart and Wal-Mart

primarily to management. Sam Walton, they say, was smarter than Mr. Antonini. That is easy to say this week. But it

wasn't always a simple call.

When Mr. Antonini took the reins of Kmart in 1987, he had his hands full. He inherited some stores that were as old as 17

years, with water-warped floors, broken light fixtures, shelves placed too close together and cheap displays set in the

middle of aisles. Also, his predecessors had neglected to implement the sophisticated computer systems that were

helping Wal-Mart track and replenish its merchandise swiftly and efficiently.

But considering that the two chains had begun the same year, Kmart was way ahead. It had nearly twice as many discount

stores, 2,223 to 1,198. The Troy, Mich., chain also had sales of $25.63 billion, compared with $15.96 billion for Wal-Mart.

Thanks to advertising and its large urban presence, Kmart and its red "K" logo also had greater visibility.

Although Wal-Mart had a more consistent record of earnings and revenue growth, in the eyes of many experts it had never

played in the major leagues. Unlike Kmart, whose stores sat on expensive urban real estate and competed against other

big discounters, Wal-Mart sat in pastures outside