Blue Lights Are Back as Kmart Tries Another Remake

Kmart (KM) is set to announce its "largest retail marketing effort ever," says a spokesman at online offshoot Bluelight.com.

It's Back Stock rallies and blue-light specials return

Kmart, based in Troy, Mich., has scheduled a press conference for Monday in New York City to unveil the plan. It will mark the latest step in a new management team's efforts to restore luster to the discount retail chain, the nation's second-largest after Wal-Mart (WMT). Frequent complaints from consumers are that Kmart's stores are hard to navigate, often are out of popular items and that the checkout process is slow -- three problems the company has acknowledged seeking to remedy in recent months. Analysts complain of higher expenses than other retailers and bloated inventories.

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A spokeswoman at Kmart was mum on the details of the marketing initiative. But one aspect will be a return to the company's famous blue-light specials, an in-store campaign that Kmart used from 1965 until the 1990s that became the company's catchphrase. At the Kmart on Astor Place in Manhattan Wednesday afternoon, workers were busy revamping the store and erecting a large blue light in the center of the first floor that will signal when an item is on sale, accompanying the familiar announcement, "Attention, Kmart shoppers..."

In addition, signs were posted throughout the store that said, "New management, new attitude. A whole new look is coming." In May, Chuck Conaway became chairman and chief executive, and a series of other management changes followed, the most recent being the March 15 appointment of Mark Schwartz, a former Wal-Mart executive, as president and chief operating officer.

Also part of the company's turnaround plans is to integrate its retail shops more closely with Bluelight.com, which in addition to selling Kmart goods online also offers free Internet access. At the Manhattan store, patrons were lined up to receive free CDs containing Bluelight.com software.

Kmart has been in much the same situation as Sears (S) and J.C. Penney (JCP), all three of which have seen market share dwindle in recent years as discounters like Target (TGT), Wal-Mart and Kohl's (KSS) have increasingly grabbed Americans by the wallet.

Kmart recently announced quarterly results that saw earnings per share fall by 36% but still top consensus Wall Street estimates. "It is clear that the new Kmart is closing the gap with our competition, and in some cases moving ahead," Conaway said in the earnings release. "With a heightened sense of urgency, we are properly focused on the massive structural and cultural transformation necessary to convert these gains into a strong and sustainable improvement in our financial performance."

The stock has risen around 80% since the beginning of the year, trading lately at $9.23. Still, the company has major challenges ahead, say analysts.

"No cause for celebration at Kmart despite management's euphoric tone," headlined a recent report by A.G. Edwards analyst Robert Buchanan. In it, Buchanan noted that Kmart's expense-to-sales ratio is considerably higher than Wal-Mart's. In addition, in a pricing survey he conducted in the St. Louis area, Buchanan found that, on average, Kmart's goods are 8.2% more expensive than Wal-Mart's and 4.7% more costly than Target's. (Buchanan has a reduce rating on Kmart, and his firm does not have a banking relationship with the retailer.)

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