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Kmart Island Growth On Hold

Caribbean strong for ailing chain


JULY 5, 2002
Copyright © 2002
Knight Ridder News Service, THE MIAMI HERALD. All rights reserved.

DETROIT - Kmart Corp. quietly started a major expansion in the Caribbean in late 2000, seeking to build on its long history in Puerto Rico and move into markets where it didn't have to compete with Wal-Mart or Target.

Today, Kmart's plans to bring the Blue Light to paradise are on hold as the Troy, Mich., discounter struggles to reinvent itself in bankruptcy court and weather a criminal investigation of the management and accounting practices of former executives.

According to company officials, construction on a Super K in Trinidad has been stopped and the building sits empty, 80 percent complete. Also halted: plans to build a second store in Trinidad; a Super K near an upscale, master-planned community of townhouses and condominiums called Millennium Heights in Barbados; five stores in the Dominican Republic, and a potential foray into Jamaica.


Some retail experts question the wisdom of spending millions of dollars on new stores in the Caribbean when Kmart's U.S. stores need to be cleaned up and modernized to compete with Wal-Mart and Target.

But Kmart was expanding into a promising region. While Kmart does not reveal store-by-store earnings, spokeswoman Susan Dennis says the Caribbean stores are a ``very strong part of our business that was doing quite well for us.''

Only one of Kmart's 28 Caribbean stores was on a list of 283 unprofitable and poorly performing stores that were closed this spring as part of the company's cost-cutting efforts.

Kmart officials say the company was expanding in the Caribbean to take advantage of markets largely untouched by U.S.-based big-box discount retailers, places where the population is desperate for reasonably priced goods. Kmart, they say, also knows the market after four decades in Puerto Rico.

Kmart's predecessor -- S.S. Kresge Co. -- opened its first store in Puerto Rico in 1959. The first Kmart followed five years later, and the company now has 24 stores in Puerto Rico and four in the U.S. Virgin Islands.

Dale Apley, Kmart divisional vice president for international trade and affairs, said the company decided to ''grow the business in the Caribbean-Central America'' region for several reasons.

'A lot of these countries' economies are much stronger than in the past, political stability is much better than it was in the past, and they are more willing to accept foreign investment than in the past,'' he said.


Kmart's experience in Puerto Rico and the Virgin Islands, he said, gives it an advantage and ``we're not going into markets dominated by other people.''

But some experts question why Kmart was moving into international markets in 2001, when it was losing more than $6 million a day -- or $2.42 billion for the year -- and hurtling toward bankruptcy.

''It wouldn't seem prudent to be expanding into new markets at a time when you should be preserving your capital to protect your downside risk,'' says Keith Alessi, a lecturer on turnaround management at the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan.

Bill Clarke, a retail consultant in Dunwoody, Ga., said Kmart should have been concentrating on its U.S. stores last year.

''As a matter of priorities, it's first things first. Get your house in order before you try to expand. This just goes to show how far off base they were,'' Clarke said.

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