DISCOUNT RETAILING To survive after bankruptcy, Kmart needs a top merchandising officer

Kmart needs new leadership to run its buying and store operations.
NEW YORK (AP) -- Kmart Corp. faces a big challenge in its post-bankruptcy struggle to flourish -- finding some key executives to lead it, particularly a chief merchandising officer.
The lack of a cohesive merchandising strategy has long been a problem at Kmart, and analysts say finding top talent to permanently fill that slot is key to the retailer's survival after its formal departure from bankruptcy court last week.
The chief merchandising officer decides what the store is going to sell, giving it a signature to attract shoppers and hopefully lure them back.
Bill Underwood, executive vice president of sourcing and global operations, has fulfilled those duties since last May, when Cecil Kearse left, the company said. Company spokesman Jack Ferry said a search is ongoing but declined to comment on its status.
CEO search
The Troy, Mich.-based discounter is also on the hunt for a new chief financial officer to replace Al Koch, chairman of Alix Partners, a turnaround management firm. Koch joined to help with the reorganization.
Kmart named Edward S. Lampert, chairman and chief executive of ESL Investments, as chairman of the board. Investor Lampert's company is converting $2 billion in financial claims against Kmart into stock and will own more than 50 percent stake in the company.
"Eddie Lampert has a stellar reputation for building long-term value, based on solid business fundamentals," said Julian Day, Kmart president and chief executive, in a statement.
"With Eddie's guidance, I am confident that the company is poised for a profitable and successful future."
But Burt Flickinger, managing partner at the consulting firm Strategic Resource Group, is wary of Kmart's fate.
"Kmart needs to dramatically overhaul management in the areas of buying, store operations and sourcing," he said.
Shares for compensation
To lure top talent as it seeks to regain market share, Kmart has set aside 10 percent of the shares it is issuing as it emerges from bankruptcy to use for compensation.
Still, industry observers believe Kmart may have a problem filling the remaining management gaps because, given the tough economy, people may be less inclined to want to jump to a company whose future is uncertain.
The company, which filed for Chapter 11 bankruptcy in January 2002, plans for this fiscal year to be a transition year, with a profit not projected until 2004. The company lost $3.22 billion in fiscal 2002.
In its monthly operating report for the four-week period ended March 26, filed with the Securities and Exchange Commission Tuesday, Kmart reported a net loss of $483 million on sales of $1.89 billion. The loss includes a noncash charge of $385 million to settle a contract rejection claim filed by Fleming Cos., which will be treated as a general unsecured claim in accordance with the terms of the reorganization plan.
"It's going to be difficult attracting talent unless [Kmart] comes up with a philosophy of what it wants Kmart to be," said Elaine Hughes, who runs a New York-based recruiting company with expertise in retailing. The company isn't involved with any of the searches at Kmart.
Rivals' clear strategies
While Kmart's two chief rivals -- Wal-Mart Stores Inc., known for having the lowest prices, and cheap chic Target Corp. have clear-cut strategies -- Kmart hasn't exactly articulated how it will stand out from the crowd. But it now has 600 fewer stores -- about 1,500 in all -- and a $2 billion loan to compete against bigger merchants.
Kmart has said only that it aims to be "the store of the neighborhood," and said it wants to strengthen its relationship with Hispanics and blacks, as well as develop its urban stores.
It also hopes to attract more consumers by further developing exclusive brands like Martha Stewart and Joe Boxer.
Executive recruiters say that finding a seasoned chief merchandising officer will perhaps be the trickiest of all hires because there is such a dearth of good ones.