Kmarts Downfall Essay Example | Topics and Well Written Essays - 750 words

Kmarts Downfall - Essay Example The competition model established by Porter is an analytical tool for studying industry behavior and corporate strategies. It is derived from industrial organization economics and includes five forces. These forces, in turn, determine the level of competition, and thus that profitability of a market. These five forces comprise of substitutes, competitors, new entering firms, bargaining power of suppliers and customers. The facts of this case study reveal that Kmart was facing intense competition from Wal-mart and Target. Wal-Mart initiated the movement of every day low prices, which was a more worthy substitute for products in Kmart. In addition, Wal-Mart utilized information technology to keep a record of sales in all of their stores and for ordering stocks of fast moving items. Wal-mart heavily invested in information technology by installing new registers with barcode scanners in every store during the 1970s and early 1980s, which fed the sales data into the back-end computers. This information, in turn, assisted them in planning future strategies, deciding which products reap more profit. Thus, they gained a competitive advantage. By 1983, Wal-Mart was able to receive goods for only two cents whereas Kmart had to pay five cents per dollar for getting goods to stores. This meant that Wal-Mart was in a position to sell products at a price three percent lesser in contrast to Kmart. Then, another c ompetitor Target began a new campaign in which they depicted themselves as a low-cost source of quality and style mart. They focused on merchandising. These attractive schemes took away Kmart’s market share. This demonstrates that Kmart was under intense pressure of substitutes, competitors, and lost customers. In 1987, Kmart undertook investments worth 1 million to modernize their systems.