Kmart Chairman Briefs Shareholders on Progress and Future Priorities at 89th Annual Stockholder Meeting

Achieving World-Class Execution Is 2001 Strategic Focus

Kmart Corporation (NYSE: KM) Chairman and CEO Chuck Conaway told shareholders at the company's 89th Annual Meeting today that he is excited about Kmart's considerable progress in implementing key initiatives to achieve world class execution. The company's top priorities include fixing the supply chain; enhancing its marketing effectiveness; developing world-class food programs; reducing expenses; and improving the 250 bottom-performing stores.

In his remarks, Conaway said the company has a heightened sense of urgency and a clear focus on a massive structural and cultural transformation. "In just 280 days, we have created many firsts at Kmart," he said. "For example, after typically trailing our competition by 400 to 500 basis points in monthly same-store sales, we have closed the gap dramatically and are competing month in and month out. We have also seen strong increases in visitor traffic and customer conversions during our most recent months, reversing massive decreases over the past years. This is clearly a result of our significant improvement in execution."

Emphasizing the three strategic imperatives set when he joined Kmart last summer -- Achieve World-Class Execution; Create a Customer-Centric Culture; and Capture Sales and Marketing Opportunities, Conaway said, "We were committed then and are committed now that every action we take is in support of these three imperatives. We settle for nothing less. We are changing our infrastructure and our culture with a new attitude about how we treat each other and how we treat the customer."

Recent execution milestones include: all price changes are now completed within 48 hours. Ninety percent of resets have been completed with a goal of 100 percent as soon as possible. The company has eliminated nearly 15,000 storage trailers behind stores that were holding merchandise that should have been on the selling floor. In-stock levels have improved from 79 percent in October to 88 percent today.

Commenting on inventory in-stock progress Conaway said, "We are rapidly closing the gap to our competition on this key metric. We will get to 90 percent as soon as possible and then move the needle north again."

World-Class Execution

Attributing execution successes to the company's commitment to invest $1.7 billion in technology over two years, Conaway listed several new programs and processes contributing to the rapid progress. At the store level, associates can now use Remote Maintenance Units (RMU) to scan SKU labels at the shelf to determine if a missing item is on order or in the backroom. During high volume periods at the registers, RMUs also are used to scan the customer's basket without being at the register. The customer is issued a "Bluelightning card" which is then scanned at the register for payment, eliminating the need to unload each item for scanning at the register saving the customer precious time. Additionally, self-checkout registers are saving time for Kmart customers.

Kmart also has entered into a $4.5 billion strategic alliance with Fleming Companies to be the primary provider of its food and consumable products. "With Fleming's centralized procurement system, we will be able to gain incremental volume discounts and procure and distribute pantry and supercenter products in the most cost-effective manner," said Conaway.

Customer-Centric Culture

A key initiative in creating a customer-centric culture at Kmart has been the adoption of the Super Service Index (SSI), a sophisticated measurement tool that collects direct feedback from more than 20 million of Kmart's customers annually through Interactive Voice Response technology. Since its implementation, the percentage of Kmart customers who rate their shopping experience as excellent has increased from 40 percent to 57 percent today. World class is considered 70 percent.

Describing the significance of the SSI scores, Conaway stated, "Over the past months, we have been able to correlate our stores' SSI scores to their sales increases. Our top performing SSI stores outperformed the chain average between 100 and 185 basis points."

Sales & Marketing Opportunities

Kmart entered into several strategic alliances in the past year to enhance its sales and marketing opportunities. The company selected TBWA/Chiat Day as its new advertising agency and, with the firm's assistance, developed a new ad campaign to support the company's launch of the BlueLight Special. Kmart's BlueLight Brand is the new foundation of value for the company. From BlueLight Specials to the BlueLight Always commitment to low prices, the brand is designed to reward Kmart customers with unprecedented values on the products they really want, building loyalty and driving frequency. The company has nearly 3,500 BlueLight.com kiosks in its stores creating more effective and efficient shopping choices for customers. Besides online purchases, customers can refill their prescriptions and apply for a Kmart MasterCard at http://www.bluelight.com/ .

Other new strategic programs include an exclusive arrangement with Disney for children's wear to complement Kmart's existing Sesame Street Line for infants and toddlers. The launch of a new Kmart MasterCard providing additional financing flexibility for Kmart customers. And, the introduction of Martha Stewart Everyday Kitchenware, making Kmart stores the destination for home.

"Our goal is to build the Kmart brand as 'The Authority for Mom, Kids and Home.' We will have the best brands, best merchandise and best shopping experience in meeting Mom's needs," said Conaway. "We are reshaping our marketing efforts to be the most integrated and insightful in the industry."

Meeting Business

During the meeting, shareholders re-elected six members of Kmart's Board of Directors, including Lilyan H. Affinito, Richard G. Cline, Chuck Conaway, Willie D. Davis, Joseph P. Flannery and Richard J. Statuto.

Shareholders also ratified the selection of PricewaterhouseCoopers LLP as independent accountants for the company for fiscal 2001.

Additionally, shareholder proposals requesting the company to endorse the Coalition for Environmentally Responsible Economies (CERES) and to adopt the International Labor Organization (ILO) principles failed.

Kmart Corporation is a near-$40 billion company that serves America with more than 2,100 Kmart and Kmart supercenter retail outlets. Kmart donates $35 million each year to support its hometowns and local non-profit organizations. Kmart associates also provide their most valuable resource -- time -- everyday in their local communities. In addition to serving all 50 states, Kmart operations extend to the Caribbean Islands and Asia Pacific. More information about Kmart is available on the World Wide Web at http://www.bluelight.com/ under the "About Kmart" section.

Cautionary Statement Regarding Forward-looking Information

Statements, other than those based on historical facts, which address activities, events, or developments that the company expects or anticipates may occur in the future are forward-looking statements which are based upon a number of assumptions concerning further conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in any forward-looking statements. The company's ability to achieve such results is subject to certain risks and uncertainties, including, but not limited to, economic and weather conditions which affect buying patterns of the company's customers, changes in consumer spending and the company's ability to anticipate buying patterns and implement appropriate inventory strategies, continued availability of capital and financing, competitive factors, and other factors affecting business beyond the company's control. Consequently, all of the forward-looking statements are qualified by these cautionary statements and there can be no assurance that the results or developments anticipated by the company will be realized or that they will have the expected effects on the company or its business or operations.

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SOURCE: Kmart Corporation

Contact: Mary Lorencz of Kmart Media Relations, 248-463-1021

Website: http://www.bluelight.com/








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