What drives some companies to succeed while others languish? Successful companies develop a system of a few truly unique capabilities that help them create differentiated value for their chosen customers. Retailers provide many case studies in capabilities-driven success, one of the most compelling of which is the big discounter triad of Walmart, Target and Kmart. And in this fourth-quarter retail season, we thought it would be helpful to take a closer look at what really distinguishes these competitors because they provide valuable insight into the key components of a winning corporate strategy. We believe that all successful companies — Walmart and Target included — know precisely how they provide value for customers. They make a deliberate choice about their “way to play” in the market, guided primarily by what those companies do uniquely well: their distinctive capabilities. We define capabilities not as “people capabilities,” but as the interconnected people, knowledge, systems, tools and processes that create differentiated value.
They then select a set of products and services that best leverage those unique capabilities and optimally suit their chosen way to play. Most important, they avoid markets, products or services that require new or disparate capabilities, and thus threaten the company’s focus. Focus for us, therefore, is not about picking just one market, but rather about choosing one coherent way of competing. The true story about Walmart’s and Target’s success is that they have gone to great lengths to focus internally on building capabilities and product offerings that suit their way to play. Kmart, by contrast, has failed to develop a unique or differentiated way to play, and all that goes with it. Let’s take a closer look. Walmart’s success doesn’t just stem from impressive logistics, aggressive vendor management and its position as a low-cost retailer. What really underlies Walmart’s advantage is a coherent and differentiated approach to the market. Their well-defined way to play focuses on “always low prices” for a wide range of consumer items, from food to prescriptions to electronics.
They support their low-cost way to play with an integrated system of capabilities, including: real estate acquisition; no frills store design; and superior supply chain management involving among others expert point-of-sale data analytics. Their product and service mix is kept tightly aligned with their way to play and capabilities system: avoiding big-ticket items (e.g., furniture or large appliances) where it has no cost advantage, or where new service capabilities might be required. And it innovates constantly within its chosen constraints: e.g., tailoring product assortments to local trends. Target caters to a similar “money-saving” market, but offers a very different value proposition, focuses on different capabilities and has a different product portfolio. Target’s way to play emphasizes design-forward apparel and home decor for image-conscious consumers. Everything from store layout to advertising to inventory conveys an eye for style. Its capabilities system supports this way to play with image advertising, “mass prestige” sourcing (with the use of private brand and exclusive offerings), pricing, and the management of urban locations.
In product and service mix, Target is similar to Walmart in many ways, but Target satisfies the needs of its younger, image-conscious shoppers by stocking more furniture, clothing and exclusive designer merchandise than Walmart. Kmart, the least successful of the group, is struggling to define its way to play, describing itself as a “mass merchandising company that offers customers quality products through a portfolio of exclusive brands and labels.” Yet, that definition could describe just about any retailer. As a Walmart customer, you know you’ll save money and still feel welcome. At Target, you know you’ll get fashionable products at prices that feel reasonable. What, then, is Kmart’s niche? Walk through a Kmart store and you’ll discover designers like Jaclyn Smith in the low-budget ambience of a warehouse. They carry Kenmore appliances, which may require high-touch sales assistance that many Sears customers expect and many Kmart stores lack. In short, Kmart has not established an identifiable way to play that reflects both customers’ needs and its own capabilities.
Harry Cunningham, the founder of Kmart, allegedly admitted that Sam Walton (the founder of Walmart) “not only copied our concepts, he strengthened them.” The lack of a clear concept about how to reach the market, in our view, is the single most important factor in explaining why Kmart’s fortunes have fallen so far, compared to its two rivals. Without a clear way to play, and capabilities to support it, a company cannot achieve the coherence it needs to truly excel at what it does, and thus outpace competitors. Paul Leinwand is a Partner in Booz & Company’s global consumer, media, and retail practice. He serves as chair of the firm’s Knowledge and Marketing Advisory Council. Cesare Mainardi is Managing Director of Booz & Company’s North American business and is a member of the firm’s Executive Committee. They are co-authors of The Essential Advantage: How to Win with a Capabilities-Driven Strategy, published by Harvard Business Review Press..The decision comes after other major U.S. retailers parted ways with the Trump brand.
Major U.S. department retailers Sears and Kmart removed 31 Trump Home products from their online stores, a spokesman said. "As part of the company’s initiative to optimize its online product assortment, we constantly refine that assortment to focus on our most profitable items," Sears Holdings Corporation spokesman Brian Hanover told Reuters in a statement, adding that neither Sears nor Kmart carries Trump Home products in-house. The Trump Home collection, which is owned by the Trump Organization, includes furniture, bedding, lighting, mirrors and chandeliers, according to its website. President Trump, accompanied by his daughter Ivanka, defended her on Twitter after Nordstrom decided to part ways with the Trump brand. Neither Sears Holdings Corporation — which oversees Kmart — nor the Trump Organization immediately responded to requests for comment. The decision comes after Nordstrom decided to part ways with Ivanka Trump’s line because of declining sales, prompting President Trump to say on Twitter that his daughter has been “treated so unfairly.”
A Sears spokesman said the company stopped selling Trump Home items on its online stores. Nordstrom sales of Ivanka’s line “fell by nearly one-third in the past fiscal year, with sharp drops in sales weeks before her father Donald Trump was elected president,” the Wall Street Journal reported Saturday. Neiman Marcus dropped Trump’s jewelry line last weekend. TJ Maxx and Marshalls have also distanced themselves from the Trump brand amid a growing #GrabYourWallet campaign urging customers to boycott the Trump brand. Ivanka Trump’s brand high heels are on sale in the clearance section at a Century 21 department store. In 2015, Macy’s dumped The Donald’s clothing line after he categorized Mexicans as “rapists" and “killers” during his presidential campaign. Kellyanne Conway, counselor to the President, was also quick to defend Ivanka on "Fox & Friends," telling the public to buy her product in what she called a “free commercial.” Rep. Elijah Cummings (D-M.