Kmart Corp.

KMART JOE BOXER LAUNCH CAMPAIGN
MARTHA STEWART EVERYDAY CAMPAIGN
ROSIE O'DONNELL AND PENNY MARSHALL CAMPAIGN

3100 West Big Beaver Road
Troy, Michigan 48084
USA
Telephone: (248) 463-1000
Web site: www.kmartcorp.com

KMART JOE BOXER LAUNCH CAMPAIGN

OVERVIEW

Joe Boxer built its reputation in the underwear field by being offbeat. It was the first to offer glow-in-the-dark boxers and was known to stage outrageous stunts, such as sending 100 pairs of underwear to President Bill Clinton in 1993 to mark his first 100 days in office. The accompanying note read, "If you're going to change the country, you've got to change your underwear." But Joe Boxer was sold in department stores, where it had to fight for shelf space, and saw sales drop off as consumers began opting to shop at specialty stores. In 2001 the company was sold and the new owner soon struck an exclusive deal with Kmart. Although Kmart was the second largest retailer in the United States, it could not hope to compete on price with the top retailer, Wal-Mart, and had attempted to carve out a place in the market by creating celebrity brands, such as the Martha Stewart line of products. Joe Boxer was the first major department store brand to make the switch to Kmart, and its launch took on even greater importance for Kmart, which in the meantime had to file for Chapter 11 bankruptcy protection and contend with the uncertainty of the future of Martha Stewart, who was involved in an insider stock trading scandal that ultimately led to her imprisonment. Thus the Joe Boxer launch not only sought to introduce Joe Boxer's expanded line of apparel and other lifestyle products but also hoped to infuse some energy into Kmart, sorely in need of a spark.

The Joe Boxer kickoff was part of a larger back-to-school effort in the summer of 2002. Developed by ad agency TBWA\Chiat\Day, it consisted of the usual oddball promotional stunts, such as shooting people wearing Joe Boxer clothes out of a cannon, as well as a special pullout section in Kmart's weekly advertising circular, mailed to 10 million people. The core of the campaign, however, was the television spots, and one in particular, "Vaughn," grabbed the spotlight. In it a muscular young African-American man happily danced his Boxer Boogie, wearing nothing more than a pair of white boxers and a toothy smile. The pure joy of his routine won over viewers, and the dancer, Vaughn Lowery, not only received his 15 minutes of fame, making television appearances and becoming the object of press interviews, but also provided Joe Boxer and Kmart with some much appreciated attention and momentum.

The Joe Boxer launch only lasted through August 2002 and the end of the back-to-school sales push, but it resulted in an immediate surge for Joe Boxer products. The emergence of Lowery as the Boxer Guy also set the stage for a pair of equally popular holiday ads and an elaborate dance-number TV spot that was part of the 2003 back-to-school campaign, which also marked the one-year anniversary of the Joe Boxer launch. The brand, in spite of its solid start, began to lose its place with Kmart, which emerged from bankruptcy and was swallowed up by Sears. The company subsequently began deemphasizing Joe Boxer, seen as little more than a men's underwear and women's intimates brand.

HISTORICAL CONTEXT

In 2001 a struggling retailer, Kmart, and a struggling underwear maker, Joe Boxer, joined forces in an effort to reverse their fortunes. The latter, established in 1985 to make novelty ties, had made its mark with its irreverent, wacky approach to boxer shorts, including the Imperial Hoser, a red tartan boxer with a detachable raccoon tail; boxers with a $100 bill silk-screened on them; and the industry's first glow-in-the-dark underwear. The company branched into loungewear and sleepwear for men and women and enjoyed strong growth during the 1990s, supported by unusual, attention-grabbing marketing efforts, such as the first-ever in-flight underwear fashion show. The brand took steps toward becoming a lifestyle brand, introducing a licensed Timex watch, for example, but Joe Boxer focused on department stores—including Saks Inc., Marshall Field's, Dillard's, May Department Stores, and Federated Department Stores—where it never received the shelf space the company wanted. More importantly, target customers began turning to specialty stores, a move that had an adverse impact on Joe Boxer's sales. In 2001 Joe Boxer was acquired by apparel holding company Windsong Allegiance Group, LLC. A short time later the company signed a long-term, exclusive agreement with Kmart. It was a down-market move for a major department store brand, but it gave Joe Boxer an opportunity to launch new lines of home and apparel products, as well as a chance to reintroduce the brand in a major marketing campaign with the resources of America's second largest retailer behind it.

For years Kmart had done well creating a series of exclusive brands—including Disney, Sesame Street, Kathy Ireland, Jaclyn Smith, and Martha Stewart—to drive sales. With Stewart in legal trouble because of insider stock trading charges, Kmart was eager to lure its first major department store brand in Joe Boxer, which also appealed to a younger customer. The retailer planned to promote the Joe Boxer-exclusive with a back-to-school campaign, but before that could take place Kmart was forced to file for Chapter 11 bankruptcy protection. Nevertheless the company pressed ahead with its plans for Joe Boxer, the launch of which took on even greater importance as Kmart more than ever needed something to change the topic away from finances and Martha Stewart and bring some energy to the business.

TARGET MARKET

The target customer for Kmart was a married woman, 35 to 45 years old, with children. The retailer's top brand, Martha Stewart, was also skewed toward older women. What made the addition of Joe Boxer so appealing to Kmart was that it targeted a younger demographic, the 14- to 34-year-old age range, and appealed to both women and men. As an exclusive Kmart brand, the Joe Boxer product lines were greatly expanded beyond underwear and sleepwear, practically infiltrating every department in the store. The brand was applied to all manner of apparel, from infant clothing to jackets and jeans, as well as shoes, jewelry, clocks, and picture frames. Given that the Joe Boxer launch was tied in with a back-to-school push, the target audience of the campaign was expanded to include the wider family market.

COMPETITION

As a department store underwear and sleepwear brand, Joe Boxer competed against the likes of Calvin Klein, Ralph Lauren, and Donna Karan—all of which possessed greater clout in terms of brand recognition and financial resources. The move to Kmart put Joe Boxer in competition with down-market underwear brands, like Fruit of the Loom and Jockey International, and with other mass merchants, like Wal-Mart and Target. But the expansion into other product categories turned Joe Boxer into a lifestyle brand. Because of its iconoclastic, somewhat irreverent approach, Joe Boxer had carved out a unique niche and lacked any direct competitor, other than companies with competing lifestyle visions, such as Calvin Klein, Ralph Lauren, and other designers.

FOOTLOOSE AND IVY LEAGUE

Vaughn Lowery, the Boxer Guy who gained sudden popularity dancing in his boxer shorts in a 15-second ad for the Joe Boxer launch with Kmart, was born in Detroit in modest circumstances. Although his family lived in a federally subsidized housing community, he grew up with a strong desire to go to college. He graduated from Cornell University with a degree in labor relations. He also wanted to pursue acting, and with that in mind he moved to Los Angeles two years before landing his first Joe Boxer commercial.

MARKETING STRATEGY

In July 2002 the campaign to introduce the Joe Boxer brand to Kmart was kicked off in typical Joe Boxer fashion. Two men dressed in Joe Boxer clothes and underwear were shot from a cannon in the parking lot of a Detroit Kmart store. "We definitely needed to get out there with the message of what you'd expect from Joe Boxer is still there, and now it's at Kmart," Kmart marketing executive Steven Feuling told Sherri Day of the New York Times. A few days later a round of four television commercials, developed by TBWA\Chiat\Day, were unveiled. Kmart also used its weekly advertising circular, sent to more than 10 million households, to promote the brand. An eight-page pullout featured Joe Boxer merchandise. Also in keeping with the brand's fun promotional events, Joe Boxer held a fashion show later in July on the escalator of the Astor Place Kmart store located in New York's Greenwich Village. Joe Boxer's founder, Nick Graham, riding on the back of a convertible, headed a parade that included the New York Police Department pipe and drum band. Graham then hosted the fashion show that featured teens modeling back-to-school apparel and presided over a mock wedding of Joe Boxer and a woman representing Kmart. "Do you, Joe, take this woman as your wife, even though she has 1,800 stores and gets around a lot?" he asked.

The centerpiece of the campaign, however, was the four 15-second TV spots, which focused on Joe Boxer's core underwear and clothing items. With the younger demographic in mind, the spots relied on an upbeat, bossa nova music track and featured young models wearing Joe Boxer underwear and clothing. In the spot titled "Guy's Trend," for example, young men 14 to 24 years of age were targeted. In it one male model wore a hooded sweatshirt with Joe Boxer on the chest, and as he pulled it over his head he commented that he loved to wear his boxers on his head. Another model wearing a Joe Boxer jacket claimed to put on his boxers "one arm at a time." A companion spot called "Girl's Trend" featured young women wearing skirts and studded blue jeans. One of the models commented that "a girl can never have too many studs."

Another of the first wave of spots, titled "Vaughn," was created spontaneously and proved so popular that it changed the entire direction of the Joe Boxer launch at Kmart. In the commercial a smiling, muscular African-American model dressed only in white cotton boxers danced to the campaign's bossa nova music in what would become known as the Boxer Boogie, something of an homage to rope-skipping fighters. The text "Why is this guy so happy?" flashed across the screen. The spot quickly developed a fan following, as did the model, 28-year-old Vaughn Lowery.

Lowery, an aspiring actor who moved to Los Angeles and turned to modeling, attended an audition for the Joe Boxer spots. He twice read from the script, asked to deliver the line "They're tight and they're white." The director had urged the actors to have fun and just be themselves, so on his third shot Lowery deviated from the script. "They played the music and I went crazy, dancing like my little cousins and I do in the living room," he told Sarah Freeman of the Associated Press. "Then I stripped down to my Joe Boxers and kept on dancing … At first it was like, 'Oh, my God, what did I just do?' But then all the Joe Boxer people, Kmart people, production people, they were all standing, whistling and clapping." TBWA creative director Patrick O'Neill called it an inspired performance, telling Freeman, "He didn't just audition to get the job; he created a combination of things we didn't foresee. It was what we call a happy accident." In short order Lowery was brought into the studio and did 25 takes of his dance; a commercial was fashioned out of his moment of spontaneity.

The "Vaughn" spot caught the attention of The Tonight Show, which played it with the head of bandleader Kevin Eubanks (who looked a lot like Lowery) superimposed over the dancer's face. Lowery gained a fan club and began making television appearances, including The Tonight Show, and granted press interviews. The spot was so popular that Kmart set up a separate website to accommodate fans who wanted to download the clip.

OUTCOME

According to Lorene Yue, writing for the Detroit Free Press, Kmart, because of "Vaughn," hadn't "seen this much attention paid to its commercials since Rosie O'Donnell and Penny Marshall strolled the aisles from 1997 to 1999." The spot was a key element in a brief campaign that created a very positive buzz about Kmart and Joe Boxer, "helping Kmart sell roughly $20 million in Joe Boxer apparel a week after the line was introduced," wrote Yue. For Kmart, dealing with Chapter 11 bankruptcy reorganization, the success with the Joe Boxer launch was a major boost to the balance sheet as well as company morale.

Lowery took advantage of his sudden fame to land a costarring role on the NBC sitcom Scrubs and appear in other advertising campaigns, and he figured prominently in subsequent Kmart efforts to promote Joe Boxer. He appeared in a pair of holiday spots in late 2002, dancing in one while wearing just a silver-wrapped box and in the other performing an "antler dance" with several women. These ads proved popular as well, leading to Lowery appearing in an ad that was part of the 2003 back-to-school marketing campaign. It offered a more elaborate, Broadway-like dance number in which Lowery made his entrance on a swing and joined in a group boogie.

The back-to-school campaign and the final Vaughn spot were held up when Kmart and TBWA\Chiat\Day became involved in a dispute over fees: $2.4 million to the agency and another $1.1 million to vendors used by the agency. Kmart eventually made the payments but parted ways with the agency that had been instrumental in the successful launch of Joe Boxer with Kmart. But the retailer, which emerged from bankruptcy in May 2003, had more pressing issues to address than building on the momentum of Joe Boxer. Kmart then merged with Sears, after which the Joe Boxer brand was cut back, and the focus returned to men's underwear and women's intimates.

MARTHA STEWART EVERYDAY CAMPAIGN

OVERVIEW

In 1997 Kmart Corporation wooed Martha Stewart back. She had taken the position of Kmart lifestyles consultant and Home Division spokesperson in 1987 but had, according to Stewart, been alienated through "unimaginative" retailing and "no quality control." As Stewart ascended to the status of lifestyle maven for American culture at large in the early 1990s, she worked her way out of her contract with Kmart, which was descending to the verge of bankruptcy. In 1995, however, Floyd Hall took over the helm of Kmart and orchestrated a turnaround. Even before he began to transform the existing Kmart format into the more shopper-friendly Big Kmart and Super Kmart formats, Hall sought to reestablish the chain's relationship with Stewart. Hall recognized that Stewart's reputation for a commitment to quality and economy suited Kmart's rebuilding plans perfectly.

Working together, Kmart and Stewart developed a video that featured each category in Stewart's Everyday brand and explained how to coordinate the various products in the line. The effort was an in-store, point-of purchase video. Additionally, Kmart released a $60 million marketing campaign to support the new brand that included television spots, print ads, and direct mailings to consumers. The remarriage succeeded, for Stewart, by establishing her own corporation, Martha Stewart Living Omnimedia, LLC, had leveraged enough power to oversee quality control. Although Stewart, a renowned perfectionist, could prove hard to please, the arrangement benefited Kmart, because it retained not a cardboard character as spokesperson but rather a well-oiled machine in the form of the 30-person staff at Stewart's company that paid attention to details. In return, Stewart benefited from the increased exposure Kmart gave her name and concept through the Martha Stewart Everyday line. Kmart and Stewart thus established a symbiotic relationship.

Brand extensions and new commercials were added in 1999 and 2000, but trouble was looming. In 2000 Kmart dropped its agency, Campbell Mithun Esty, Minneapolis, and replaced it with TBWA\Chiat\Day New York. Despite reviving its BlueLight Special in 2001 and releasing a new marketing campaign supporting it as well as a new round of commercials promoting the Martha Stewart Everyday brand, Kmart filed for bankruptcy in 2002. Stewart encountered her own legal problems in 2002 when she became embroiled in an insider-trading scandal.

HISTORICAL CONTEXT

According to Marcia Heroux Pounds in a 1998 article in the Ft. Lauderdale Sun-Sentinel, in 1987 Boca Raton-based marketing consultant Barbara Loren-Snyder was searching for "the Ralph Lauren for the masses of the ['90s]," someone to pair with Kmart to boost profits in its housewares department. Stewart's 1982 book Entertaining caught Loren-Snyder's eye on a bookstore shelf, and a visit to Stewart's Westport, Connecticut, home, with its painted floors, confirmed Loren-Snyder's hunch that she had identified a candidate with flair and style. Loren-Snyder's advice outweighed that of the other three consultants assigned to the project, and Kmart gave Stewart the nod, negotiating what amounted to a licensing agreement with her. Stewart appeared in television commercials for Kmart, and Kmart featured Stewart's name on some of its products. The agreement, however, did not prevent Stewart from backing out when she experienced difficulty dealing with Kmart, which was on a downslide at the time.

Under chief executive officer Joseph Antonini, Kmart started to founder in the early 1990s. The discount retailer posted a staggering loss of $974 million in 1993. It rebounded in 1994 with a slight profit but sank back into red ink in 1995, losing $571 million. Much of the blame for the slide fell on Antonini, who resigned in March 1995 at the urging of shareholders and the board of directors. The board replaced Antonini with Hall, the former chief executive of rival discount retailer Target who had since headed Grand Union supermarkets and cofounded his own business in museum reproductions. Hall strategized a turnaround by restructuring the existing Kmarts instead of expanding; in fact, he closed some 200 locations that were lagging in sales. The Big Kmart format featured wider aisles and brighter lighting. In addition, it expanded the grocery section by 35 percent, hoping to lure one-stop shoppers with low-margin groceries in addition to high-margin apparel. These and other strategies succeeded, and Kmart posted profits of $249 million in 1997.

At the same time that Kmart was rebounding, Stewart was eclipsing her previous success. She continued to publish books as well as Martha Stewart Living magazine, which reached a circulation of 2 million. She had a syndicated newspaper column, a daily radio feature, and a television program. She also mastered interactive media, maintaining a World Wide Web site that hosted 300,000 visits a week. Just as Kmart approached her to reestablish their relationship, Stewart was consolidating these diverse enterprises under one umbrella, her company Martha Stewart Living Omnimedia, which she bought from Time Inc. in 1997. Thus, what distinguished the second union between Kmart and Stewart was that both sides were now operating from a position of strength.

TARGET MARKET

Kmart's target market consisted of women aged 25 to 49 who came from households with incomes of $20,000 to $60,000. Kmart had traditionally offered low prices for low-quality merchandise, but Hall changed this formula. Stewart represented the key to the transformation, with the success of the Martha Stewart Everyday line, symbolizing the overall repositioning of Kmart. Stewart's name was synonymous with quality, but she also promoted common sense, which included economizing. In fact, Stewart helped usher in the trend toward sensible shopping. In the 1980s shoppers had displayed their ability to overspend. The recession of the early 1990s reversed this dynamic. It became "chic to save," according to Kurt Barnard, president of Barnard's Retail Trend Report, as reported by Marty Hair in the Newark Star-Ledger.

Stewart did not act only to lower the bar, however. She also raised the bar in terms of Kmart's clientele. Shoppers who would not otherwise have frequented the discount chain were lured in specifically by her line. Even though Martha Stewart Living magazine categorically avoided advertising the Martha Stewart Everyday line, cross-fertilization nevertheless occurred on the strength of Stewart's reputation. Kmart and Stewart anticipated and facilitated this dynamic of higher-income women shopping at a discount store by offering three tiers of products: Blue, White, and Silver lines. The uninitiated could work their way up from the bottom tier, the Blue line, but those accustomed to high quality could find what they wanted from the start in the top tier, the Silver line.

COMPETITION

In reputation Kmart positioned itself between Wal-Mart and Target, and it fell between them in market share as well. Wal-Mart appealed to hard-core discount shoppers, while Target appealed to younger and higher-income shoppers. According to a 1998 article by George White in the Los Angeles Times, Wal-Mart had 22 percent of the discount retail market, while Kmart controlled 9 percent and Target 5 percent. The Martha Stewart Everyday line provided a point of differentiation from Wal-Mart, for it offered not simply savings but also value and quality. This positioned Kmart closer to Target, whose target market consisted of under-40 college graduates with young children and a household income of about $47,000.

Target reacted by hiring architect Michael Graves to design a line of affordable but stylish housewares, such as clocks, kitchen utensils and appliances, and picture frames. Target extended the notion of branding a designer by choosing not a lifestyle designer such as Stewart but rather a designer of the forms and objects themselves such as Graves. Although critics complained about the commercialization of architecture, Target customers benefited by being able to purchase pleasantly designed functional items.

MARKETING STRATEGY

"Martha Stewart has a reputation for doing things right," said Kmart shopper Janet Day in George White's Los Angeles Times article. "I'm sure she wouldn't allow anyone to use her name on a product unless she was happy with it." Although it might have been easy to exploit such a reputation, Stewart worked hard to gain integrity and to sustain it. Thus, she oversaw quality control of the Martha Stewart Everyday line. "We don't advise. We don't approve. We do it," said Sharon Patrick, president and chief operating officer of Martha Stewart Living Omnimedia. Steve Ryman, Kmart divisional vice president and brand director of Martha Stewart Everyday, agreed. "They have total control. But," he added, "they listen well." As explained by Patrick, Stewart and Kmart shared a vision: "We want to engineer quality into mass market products."

The central considerations behind the Martha Stewart Everyday line were function and coordination. Individually, each product in the line was designed to fulfill a specific function properly. More important, however, Stewart designed her products to correspond in color and style across categories. This design symmetry removed the burden of matching from Kmart consumers, many of whom were not prepared to undertake the task. The designer, in this case Stewart, thus had the most important role in creating the brand. Martha Stewart Everyday epitomized the "designer brand," as Stewart herself was both the designer and the brand, exemplifying the 1990s trend toward the branding of designers, as with Graves. The strength behind the brand was the equity Stewart had accumulated by investing in her own identity, which at this point had a tangible salability.

TAPPING INTO ASPIRATIONS

Part of Martha Stewart's work at Kmart involved educating consumers about the benefits of buying higher-quality products. For example, a 180-thread-count bedsheet had traditionally been considered a good value for a discount store, but few discount-store shoppers understood what 180-count meant. In order to convince people to buy a better quality, Stewart had to explain to them what they were missing. Stewart simply pointed out to consumers that the 200-count sheets in her Blue line were woven more tightly, felt more comfortable, and lasted longer than the 180-count sheets they were used to. The White line sported a 230-count sheet, and the Silver line featured a 250-count sheet. Once these comparisons were established, Kmart shoppers could understand why they might consider paying a little more (though still a reasonable price) for a slightly better product. Hence the success of the White line, the next step up in the Martha Stewart Everyday product range, and of the Silver line, the top tier. Stewart and Kmart were simply tapping into shoppers' aspirations.

Kmart and Stewart produced an in-store, point-of-purchase video that showed all of the categories in the Martha Stewart Everyday line—bedding, towels, paints, and so forth—and explained how to coordinate items. The video also explained the progression from the different tiers of products, from the Blue to the White to the Silver line. Kmart further supported the Martha Stewart Everyday line by devoting a 4,500-square-foot area in each store exclusively to the products. In early 1998 these products accounted for 55 percent of Kmart's "soft home" business, and by the end of the year they accounted for 70 percent of Kmart's sales of domestic products. Kmart and Stewart agreed, however, that the line should not represent Kmart's entire offerings in domestic products, for some products were not appropriate to the Stewart concept. On the other hand, Kmart announced its intentions to expand the Martha Stewart Everyday line into other appropriate categories.

Kmart supported the Martha Stewart Everyday brand with its most extensive marketing campaign ever. The discount retailer spent $60 million on television and print advertising, direct mailings, and special events to promote the line. In March 1998 Kmart relaunched a national television spot that showed Stewart hanging sheets across the Grand Canyon, and it produced a new spot for the summer. It supported the new spring line of products with print advertising, direct mail, Sunday newspaper inserts, and magazine ads.

As promised, in 1999 Kmart and Stewart launched an extension of her Everyday brand with the introduction of Martha Stewart Everyday Garden, which included outdoor and patio furniture. In 2000 Everyday Kitchen, another brand extension featuring more than 650 cooking and entertaining items, such as dinnerware, bake-ware, and cutlery, hit Kmart's shelves. The Everyday Keeping collection of home-storage items followed in 2001 and included such products as closet organizers, hangers, ironing boards, and airtight glass and plastic containers. Also introduced in 2001 was the Everyday Decorating line, with lamps, mirrors, picture frames, and other home-decor products. Each new line extension was supported by television spots, print ads, and direct mailings. Stewart, shown putting her products to good use, figured prominently in all of the commercials. One spot supporting the Everyday Kitchen product launch featured Stewart setting her table for dinner guests with a selection of items from her Kitchen collection.

OUTCOME

Measuring strictly by the book, Kmart's Martha Stewart Everyday campaign succeeded beyond expectations. In 1998, its second year, the brand had $800 million in sales, up from $450 million in the first year. The success stemmed from each category of the line performing in top form. The Martha Stewart Everyday brand of towels was outsold only by Cannon, which had been in the business for more than 100 years. Success also stemmed from the coordination of the lines under the larger umbrella. The White line, the intermediate tier, outperformed all expectations, and the Silver line also did better than projected. Only the Blue line merely met sales expectations.

Kmart and Stewart won a slew of awards for their coordinated marketing efforts. The Big Kmart layout, with 4,500 square feet devoted to the Martha Stewart Everyday line, won the 1997 Discount Store News Supply Performance Award by Retail Category, (SPARC/3M Award) for its unique and effective design. Kmart was named the 1998 LIMA Retailer of the Year specifically for the Martha Stewart Everyday line in domestics and nonfurnishings. The American Marketing Association awarded both Kmart and Martha Stewart Living Omnimedia its silver and bronze Edison Best New Product Awards for the Martha Stewart Everyday line in its introductory year. In addition, the association awarded Stewart herself the Edison Achievement Award, bestowed upon executives who distinguished themselves through exemplary business careers.

The success of the Martha Stewart Everyday line became the benchmark for Kmart's potential under the restructuring orchestrated by Hall. One key feature of the success was its sustainability as the Martha Stewart Everyday line was extended into other categories. In spring 1999 Kmart introduced the Martha Stewart Everyday Garden collection, which included 10 patio furniture sets as well as gardening supplies such as bamboo rakes, organic fertilizers, gloves, hoses, and flowerpots. In the future the retailer planned to extend the horticultural line with the addition of live plants, bulbs, and seeds. Kmart also announced plans to launch the Martha Stewart Everyday Baby layette collection and later to add kitchen products, the area in which Stewart, on the strength of her cookbooks, had initially earned her reputation. According to a 1999 article by Mike Duff in Discount Store News, Andy Giancamilli, president of U.S. Kmart Stores, said, "Once we've extended her into kitchen, that's it. Then we build." Martha Stewart Everyday brand director Ryman agreed with his colleague. "I think it's best to say we're just at the beginning and have a lot of product development, marketing and advertising to accomplish," he was quoted as saying in Duff's article. "You haven't seen anything but the tip of the iceberg. We have just started to see the effects of Martha Stewart at Kmart," Ryman concluded.

Although the Martha Stewart Everyday line was a success, Kmart was struggling in the marketplace and in search of more edgy advertising to try and win customers from its competitor Target. In 2000 Kmart moved its $100 million advertising account to TBWA\Chiat\Day New York. The new agency did not tamper with the Stewart campaign, but in 2001 it released a marketing campaign that reintroduced Kmart's BlueLight Special and the familiar announcement "Attention Kmart Shoppers …"

Despite the sales increases attributed to the Martha Stewart Everyday line, a new ad agency, and a new campaign, Kmart continued to face declining overall sales, climbing financial losses, and a particularly poor 2001 holiday shopping season. In January 2002 the chain filed for Chapter 11 bankruptcy. Adding to the retailer's woes, Martha Stewart was embroiled in her own legal problems after becoming tied to the ImClone Systems insider-trading scandal. A new series of commercials that Kmart released in October 2002, featuring Stewart promoting her line of bed and bath linens for the holidays, came under fire from the media and consumers. For subsequent holiday television spots promoting the Martha Stewart Everyday brands, Kmart dropped Stewart, using only her voice with an image of Santa Claus.

ROSIE O'DONNELL AND PENNY MARSHALL CAMPAIGN

OVERVIEW

In 1994 Kmart Corporation came close to bankruptcy. In October of that year the company—then the second-largest retailer in the United States—posted its seventh consecutive quarterly decline in profits, closed 100 of its 2,350 stores, cut the ranks of management by 10 percent, and laid off 5,350 hourly employees. In March 1995 Kmart's board of directors forced the company's president and CEO to resign. And in April of that year Kmart ended its 25-year association with the advertising firm of Ross Roy Communications when it announced that it had chosen Minneapolis-based Campbell Mithun Esty (CME) to handle its $175 million account.

In November 1995 CME introduced a new Kmart holiday advertising campaign starring television and movie celebrities Rosie O'Donnell and Penny Marshall. The campaign included 10 commercials directed by comedian David Steinberg. They depicted the two women as Kmart shopping buddies, with shopping-savvy O'Donnell pointing out featured merchandise and great values to novice shopper Marshall. The goal of the spots was not only to increase sales but also to build awareness of Kmart as a fun place to shop. According to a CME executive, the message was that "Kmart is changing. The merchandise is better, it's more fun to shop there, and I can still get great deals."

The campaign was a success, despite polls that showed consumers had lost faith in celebrity endorsements. According to USA Today's Ad Track, 31 percent of women who had viewed the commercials described them as "very effective." Television spots featuring O'Donnell and Marshall also helped drive sales, and as the campaign continued, so too did its success. In December 1997 the campaign moved into its second year with new commercials, and Kmart reported that sales had increased 2.9 percent over the same period the previous year, with overall earnings in 1997 up 43 percent. Based on the campaign's success, new spots were released in 1998 and 1999. At the end of 1999, however, O'Donnell's relationship with Kmart ended as a result of complaints from consumers about her advocacy of gun control. In 2000 Kmart also moved its account to ad agency TBWA\Chiat\Day New York as it planned to shift to edgier advertising.

HISTORICAL CONTEXT

From modest beginnings in 1899 as the S.S. Kresge Co. Store in downtown Detroit, rapid expansion took Kresge to 85 stores and annual sales of $10 million by 1912. In 1929 a Kresge store became part of the first suburban shopping center, Country Club Plaza in Kansas City, Missouri. The Kresge company launched its first newspaper advertising in 1930 and in the 1950s added radio advertising. It was during this time that the discount store came into being. Kresge opened its first discount store in Garden City, Michigan, in 1962 under the name Kmart. By 1998 Kmart had some 2,100 stores in the United States, Puerto Rico, Guam, the U.S. Virgin Islands, Canada, and Mexico and employed more than 300,000 people.

The growth of the company was not all uphill. From the late 1970s through the early 1990s the company instituted an aggressive program of expansion and acquisition. It acquired all or parts of such companies as Waldenbooks, Sports Giant, Sports Authority, and OfficeMax. By the mid-1990s Kmart seemed to have lost focus, and the company began to reevaluate its holdings. According to CME spokeswoman Ginny Vonckx, "Despite a presence in thousands of towns across America and elsewhere, its identity with consumers had declined…. Consumers questioned if it was still a great store that delivered great merchandise at a great value."

In the early 1990s Kmart instituted a five-year store renovation project. Commercials promised consumers that stores would be brighter and better stocked. As Jennifer Negley reported in Discount Store News, however, "… consumers overall were not convinced to switch their allegiance to 'the new Kmart,' particularly when there were freshly built, cleaner, better-stocked Wal-Marts and Targets just down the road."

When new management took over the company in late 1994, there was a move to shore up the chain's sagging image. Before it hired CME as its ad agency, Kmart's slogan had been "Low prices and extras you won't find anywhere else." Consumer research showed that the advertising led customers to expect to find great deals, a pleasant shopping atmosphere, and a good selection of merchandise. Shoppers had difficulty, however, matching the advertising with the reality of a visit to a Kmart store. Thus, by late 1995 Kmart was experiencing severe image problems and was rapidly losing credibility with its customers and shareholders. David Tree, chief creative officer of CME, told Adweek's Jean Halliday and Ellen Rooney Martin that Kmart's previous advertising had been "self-important and over-reaching. It missed the target."

As a way of improving communications with customers, CME introduced O'Donnell and Marshall as ambassadors for Kmart. O'Donnell had been a stand-up comic before beginning a movie career in 1992, when she was selected by director Marshall to costar in A League of Their Own. Other film credits included Sleepless in Seattle, The Flintstones, Exit to Eden, and Harriet the Spy. She made her Broadway debut in 1994 as Rizzo in Tommy Tune's revival of Grease and in 1996 began her own variety and talk show. Marshall was perhaps best remembered for her role in the situation comedy Laverne and Shirley, which ran for more than seven seasons on ABC. She moved to the forefront of Hollywood directors with the film Big, the first movie directed by a woman to take in more than $100 million at the box office. Since then she had directed numerous other movies, including the Academy Award-nominated Awakenings.

The pair was chosen because it was believed that Kmart shoppers could identify with them because they were down-to-earth and had the ability to relate to the average consumer. In a 1995 interview in Advertising Age, R. Fulton Macdonald, president of International Business Development, applauded Kmart's choice. He told reporter Leah Haran, "Rosie is very credible, and the biggest thing Kmart needs is credibility. That is going in the right direction—getting credible women to vouch for Kmart without making false pretenses. She is no-nonsense and tells it like it is."

TARGET MARKET

During the years Kmart was undergoing its program of expansion and acquisition, it also tried to change its identity. The company made efforts to broaden its traditional blue-collar appeal and to include a more upscale market by, for example, instituting exclusive items such as a designer clothing line by former Charlie's Angels actress Jaclyn Smith. When the O'Donnell-Marshall campaign was created, however, the idea was to appeal to the company's original target market. This market consisted of women between the ages of 25 and 49 who had children and household incomes of $20,000 to $50,000. Research showed that 87 percent of America's children came from such households and that these women were heavy discount shoppers. The idea was to relate directly to these women in a humorous way.

COMPETITION

The problems that Kmart was experiencing in attracting consumers were caused in part by what retail consultants Management Horizons called the "overstoring of America." Stores such as Wal-Mart, Sears, Target, and J.C. Penney created intense competition for customers, and they did so partly through substantial increases in advertising. In the early 1990s, for example, Wal-Mart increased its ad spending by 14 percent and Target its spending by 47 percent. During the same two years Kmart's spending on advertising dropped almost 32 percent.

By 1998 Wal-Mart was the world's number one retailer, bigger than Sears, Kmart, and J.C. Penney combined. Its commercials focused on the store's low prices as well as the friendliness of its staff, with many of the commercials featuring actual employees talking about the great values that could be found at a Wal-Mart store. Sears, another of Kmart's principal competitors, faced its own image problems. Its solution was a long-running campaign created by Young & Rubicam that featured the slogans "The Many Sides of Sears" and "The Softer Sides of Sears." If Kmart were to stay afloat, it needed to make the experience of shopping in its stores more desirable for the target customer and address the negative perceptions of its stores.

MARKETING STRATEGY

Kmart took a four-pronged approach to restoring its image and its profits. First, it built on the popularity and credibility of the two spokeswomen, O'Donnell and Marshall, to instill confidence in consumers. The company then strengthened its exclusive celebrity brands, including Jaclyn Smith's sportswear, Kathy Ireland's swimwear and lingerie, Martha Stewart Everyday housewares, and Sesame Street children's merchandise. The third step was to refurbish stores to create a more pleasant shopping experience. And, fourth, in 1998 the company began to reposition the chain as Big Kmart, relying on big-name celebrities like Bob Hope, featured in one of the first Big Kmart commercials, to bring added credibility to the turnaround.

All of Kmart's efforts were successful in bringing the company back to life, but it was the O'Donnell-Marshall commercials that most people came to associate with the Kmart name. From the beginning consumers enjoyed the two women's sharp-tongued yet good-natured banter. One of the first commercials in the series had Marshall looking for toys while she and O'Donnell hurried through a Kmart store. "They got Hot Skate Barbie?" asked Marshall. "Right here," said O'Donnell. "They got Hot Wheels Criss Cross Crash?" asked Marshall. "Right here," said O'Donnell. "What about Dr. Dreadful?" asked Marshall. To which O'Donnell replied, "Oh, we broke up months ago."

But even Kmart could not have foreseen the success of the Rosie O'Donnell Show. When the comedian went on the air with her own talk show in 1996, it was an immediate hit. She and her guests referred to Kmart frequently, and O'Donnell even began to refer to herself as "the Kmart lady." Marshall was sometimes a guest on the program, and she and O'Donnell recited Kmart escapades. When O'Donnell hosted Saturday Night Live, none other than Marshall made a special guest appearance. In the show's opening segment Marshall complimented O'Donnell on her outfit, asking her where she had bought it. "Kmart," replied O'Donnell. "Who knew?" Marshall answered, repeating a refrain from a Kmart commercial.

O'Donnell and Marshall celebrated their first anniversary with Kmart in November 1996 with another series of 10 holiday commercials. The first two were "Toy Mania," which showed the two women in a Kmart playing with Legos, which was featured in a store-wide promotion, and "Trim-A-Home," in which O'Donnell used soap opera terms to discuss the happenings in her illuminated ceramic Christmas village. Their anniversary series also marked the pair's first 60-second spot (previous spots had been 30 seconds long), a parody of the "Twelve Days of Christmas."

ROSIE O'DONNELL'S ROSIE O'DOLL

The success of Rosie O'Donnell's talk show took many people by surprise, including toy makers. During the holiday shopping season of 1996, O'Donnell talked about one of her new favorites, a toy called Tickle Me Elmo by Tyco. This generated a national buying frenzy for the doll, as well as Tyco's immense gratitude. To say thanks, the company made a doll in O'Donnell's likeness and presented it to her. Rosie O'Doll was a 16-inch soft-bodied toy that, when squeezed, uttered O'Donnell-inspired phrases like "What a cutie patootie!" and "Dreams come true with Rosie." O'Donnell was so taken with the doll that she suggested to Tyco that they mass-produce it and work with selected retailers to donate a portion of the proceeds to the For All Kids Foundation.

Naturally, one of the retailers chosen was Kmart. Bill Dunlap, chairman of Campbell Mithun Esty, told Stuart Elliott of the New York Times, "Rosie puts fun into shopping, and she's very interested in kids, which is a big part of the Kmart mix." The doll also made a cameo appearance in the 1997 commercial "Toy Mania," perched on a shelf above O'Donnell and Penny Marshall as they answered questions on the toy hotline.

In 1997 the two celebrities were featured in Kmart's holiday commercials for the third straight year. Larry Davis, Kmart's vice president of marketing, told Adweek's Aaron Baar, "Customers tell us that, as they're in the midst of their own holiday preparations, they look forward to seeing how Rosie and Penny fare." Two of the 1997 spots were once again directed by comedian Steinberg. One spot, "Holiday Magic," showed how O'Donnell moved from the present to the Renaissance and back again with a click of her fingers. Marshall attempted to re-create the feat but to no avail. She then found herself sporting reindeer antlers and lamenting that she would like to go shopping but would not fit in the car. O'Donnell told her not to worry because "you'll pull it." "Santa's Workshop" found the pair at the North Pole, where they observed busy elves readying a wide variety of holiday merchandise for Kmart stores. At the conclusion of the tour, O'Donnell asked Marshall, "So what we have learned?" "We need elves," Marshall replied.

The campaigns were fully integrated with Kmart promotions. Items fitting the campaign strategy were also prominently featured in Sunday newspaper circulars, and store signs promoted such themes as "Toy Mania." When a major in-store promotion was scheduled, O'Donnell and Marshall were used to generate awareness and highlight the promotion. One Thanksgiving commercial, for example, featured the pair waiting at dawn for a Kmart store to open so they could get a free fanny pack with $70 in coupons. The spot was coordinated with a promotion offering the free gift and coupons to the first 500 customers at each Kmart store.

The campaign continued in 1998 with the introduction of a new series of holiday-season television spots featuring the popular duo. The spots debuted in November during the NBC Sunday Night Movie and ran through mid-December. Playing up O'Donnell's well-known passion for Broadway, two of the spots promoted the "big show" at Kmart, according to a report in PR Newswire. One spot, titled "That's Entertainment," had O'Donnell and Marshall doing a song-and-dance routine riddled with pratfalls and featuring a guest appearance by Godzilla. Another spot, "Be a Santa," featured the two performing with singing elves.

As the 1999 holiday shopping season unfolded, Kmart and other traditional retailers were confronted with competition from the Internet as more and more shoppers preferred to do their gift buying online. In an Advertising Age report analysts predicted a "bleak Christmas for the inert traditional retailers." Kmart released a new round of commercials and television specials featuring its top spokeswomen, O'Donnell and Marshall. In a break from the humorous spots featuring O'Donnell and Marshall, the chain also introduced a new campaign that targeted women and starred the country-music mother-daughter singing team Naomi and Wynonna Judd.

OUTCOME

Although a 1996 USA Today Ad Track poll showed that consumers were losing faith in celebrity endorsers, the Kmart commercials proved to be an exception to the rule. CME's Tree told USA Today reporter Melanie Wells that consumers were responding more favorably to Kmart since the campaign had begun airing. "We're not looking for celebrities to be shills for the company," said Tree. "They're there as actresses. They're an exaggeration of the Kmart customer. They are 'ordinary people' who tell it like it is."

The strategy seemed to work. According to USA Today's Ad Track, more than one-third of the women polled liked the spots, compared with less than one-fifth of men. The spots were said to be "very effective" by 31 percent of the women, as opposed to 19 percent of the men. According to Dottie Enrico, "… the campaign performed well with all adult consumers. An impressive 29 percent of those who'd seen the ads three times or more [said] they liked them a lot. The ads were especially popular with consumers over 25." The ad agency was pleased with the campaign's results; CME's Vonckx stated, "our own research, and research done by third parties, has told us repeatedly how much our consumers like these ads. And they like them because they can relate to these two friends as shoppers, and they're rewarded for watching them with a story that's entertaining too."

Writing about the campaign in Discount Store News, reporter Negley stated, "The casting of two women with strong blue collar appeal and working class bonafides not only speaks straight to Kmart's core customer, it's proved something of a public relations master-stroke." That masterstroke seemed to have been successful in getting Kmart on the road back to the position it once held. In 1998 Kmart was the country's third-largest retailer, and its stock was trading at more than three times the value it had before the O'Donnell-Marshall spots began running. Kmart's holiday sales in December 1997 rose a small but significant 2.9 percent over the same period in 1996, with Wal-Mart's sales rising 7.2 percent and Target's 6.4 percent, while J.C. Penney's was falling by 2.3 percent. Overall earnings at Kmart in 1997 were $330 million, a 43 percent increase over the previous year.

In 1999 O'Donnell and Kmart announced that the company's popular spokeswoman was ending her five-year association with the company when her contract expired in December. A Knight Ridder/Tribune Business News report attributed the decision to O'Donnell's pro-gun-control views and subsequent complaints from angry consumers. According to Knight Ridder/Tribune Business News, after O'Donnell publicly criticized actor Tom Selleck for appearing in a commercial for the National Rifle Association, "Kmart received hundreds of angry phone calls from National Rifle Association supporters." It was uncertain whether or not Marshall would continue to appear in commercials for Kmart without her sidekick. Kmart announced in 2000 that it was moving its $100 million account to TBWA\Chiat\Day New York.