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How the Mighty Have Fallen
"Broken Windows" hubris...
[Michael Levine] 4/7/06

In the 1980s and 90s, few symbols were as recognizable in this country as the Kmart logo. When the chain reached its all-time high of 2,323 stores in 1994, there appeared to be a Kmart on every highway, in every shopping mall, virtually every bend in the road. So when Kmart announced in 2002, its fortieth-anniversary year, that it was seeking bankruptcy protection, and that it would close stores in forty four states and Puerto Rico as part of its reorganization plan, the news came as a shock.

It shouldn't have.

“Kmart’s dismal bottom line is directly related to its lack of customer service and its out-of-control operating costs,” says John Tschohl, an international management consultant and speaker. “If the company had taken just 10 percent of it advertising or renovations budgets and used that money to train its employees in the art of customer service, Kmart might have realized profits similar to those of Wal-Mart.”

Poor customer service is the ultimate broken window. It is the thing that all customers will notice immediately, that will make an enormous negative impact and that will not only hurt the company offering the service but give consumers strong incentive to patronize its competition. And demonstrate customer service problems will not only convince consumers that the company doesn't care about its own business—the message the broken windows throughout the business world—they will make and even more damaging point: that the company doesn’t care about its customers, either. That will kill a business faster and more completely that any other oversight.

In January 2002, George Chamberlin wrote in the San Diego—area North County Times: “Five years ago, the betting money might have favored Kmart. They had just signed up an exclusive distribution contract with Martha Stewart, a sure magnet for baby boomers. And super models like Kathy Ireland and Jaclyn Smith were hawking merchandise every Sunday in the Kmart newspaper supplements. At the same time, Wal-Mart was purchasing a different strategy: position the company as the place to shop if you want to save money. Advertising was designed to build a corporate image, not sell specific products. At the same time, Wal-Mart started aggressively selling food products and today is the largest grocery store chain in the United States.”

Chamberlin also noted that while Wal-Mart made sure to place its specific stores in high traffic, shopper friendly locations, Kmart was more interested in saving money on rent. Kmart is the classic example of what I like to call Broken Windows Hubris, the unfortunate—and destructive—tendency in some huge corporations (and some less enormous) to believe that they are so successful, so large, so invincible, so much part of the modern society, that they are not subject to the same scrutiny by the public that makes any other company answerable to the broken windows theory. These companies and among them are McDonalds’s, Sears, and Disney—suffer from attacks of ego, yes, but that’s to simple an explanation. The type of miscalculation that we are discussing here is much more pervasive, from the CEO to the janitor; it is the overwhelming perception from within the company that nothing can ever bring us down because we’re just too good.

The truth is, Kmart’s problems began long before Target and Wal-Mart began to over take it in sales and in the public’s perception. And keep in mind that the public’s perception of a company might be more important than the truth, since the truth, if it is not what the public believes, can’t really set you free.

How then did Kmart reach a point where it closed six hundred stores and cute 67,000 jobs between January 2002 and May 2003, when it emerged from chapter 11 protection? How did it manage to loose $3.2 billion in 2002, even as it became leaner and meaner, cutting its size by almost 33 percent?

Kmart lost sight of its covenant with the consumer. It stopped offering Blue Light Specials because the company saw itself as something other than a discount retailer. Because of Broken Windows Hubris, the boardroom became tired of “Blue Light Special” being late-night comedian’s punch line and having the company seen as something akin to the tiny chains around the country that sold all items for a dollar. Kmart, in short, wanted respect, and in seeking it, lost the consumer’s trust. It was the wrong trade to make, and it cost the company dearly.

American Airlines, once the country’s largest and seemingly most invincible airline, came within inches of bankruptcy in 2003, surviving only because its unions agreed to last-minute concessions that kept the company out of chapter 11 protection. An upstart that emphasizes customer service above all other things, jet blue was thriving at the same time. Consumer want to be treated better, and businesses only sporadically notice or act on the desire. It’s been the reason Nordstrom has a pianist on staff fulltime and offers impeccable customer service. It’s the reason no L.L. Bean customer will ever end an encounter with that company unsatisfied if the company has a say in the matter (and it does).

The lessons of Kmart are many, but the key is in this area: Poor customer service, the ultimate broken window, coupled with an unrealistic view of the company from within (Broken Windows Hubris), will sink a company, no matter how large and ubiquitous it may once have been. Kmart tried to fix its broken windows by covering them over the clear plastic, but the shattered glass beneath could still be seen by the consuming public, and as of this writing, it is still visible. -ONE-

Michael Levine is the founder of LCO- Levine Communications Office, a Los Angeles-based public relations firm, and the author of 17 books, including Broken Windows (Warner Books, 2005). www.LCOonline.com

copyright 2005 Michael Levine

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