When It Comes to Kmart, It's Relative Performance That Counts By Arne Alsin Special to TheStreet.com 7/16/01 2:05 PM ET

Chris Edmonds says that the Kmart (KM:NYSE - news - commentary) shopping experience is not even close to Target's (TGT:NYSE - news - commentary). He's right. But just stating the obvious doesn't help investors make money.

When I assess the attractiveness of Kmart stock, the shopping experience is so many fathoms down my checklist of things to consider, I don't think there's any light down there.

I'm glad I ignored the inferior shopping experience at J.C. Penney (JCP:NYSE - news - commentary) when I recommended it back in December (up 167%). And I'm glad I ignored the superior shopping experience at Kohl's (KSS:NYSE - news - commentary) when I panned the stock in January (down 13%).

My guess is that shopping at Kohl's and Target will be better than shopping at Penney's and Kmart for a long time to come. But successful investors don't think in absolute terms like this. The world is relative -- everything depends on your frame of reference.

The important question to ask is, relative to recent history, is the shopping experience at Kmart improving? The evidence is incontrovertible that it is -- recent sales data suggest Kmart is beginning to beat Target in key metrics like same-store sales growth, and there has also been measurable improvement in service levels. Kmart also has an exclusive relationship with Martha Stewart that already accounts for 4% of its sales, and new deals with Disney and Sesame Street also should help. Bottom line -- it doesn't matter whether Kmart shopping is the best, just that, relative to recent history, it is getting better.

And relative to a variety of metrics, operations at Kmart have taken a decided turn for the better. As an investor, it doesn't matter that they are equal to or even in the same neighborhood as Target, just that the trend is clearly on the upswing.

Both companies will generate about $37 billion in sales this year. For that effort, Kmart is valued at about $5 billion and Target is worth $31 billion. If Chris Edmonds really wants to gauge the reasonableness of these valuations, I'm afraid he's going to have to wade through a few financial statements -- if he can spare some time from shopping!

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