Wal-Mart, Toys R Us Poised To Gain Market Share

BY MEGAN HJERMSTAD

TROY, MI—Kmart's Chapter 11 bankruptcy filing may hurt bicycle sales at the nation's second largest discount retailer, but its loss will be offset by other mass retailers' gains.

Huffy, which supplies the majority of Kmart's bicycles, reported that its fourth-quarter results were lower than originally anticipated due, in part, to Kmart's bankruptcy filing and resulting store closures.

"Our accounts receivable exposure to Kmart is at a seasonal low level, however, we will take a net after-tax charge to earnings of approximately $2.7 million," Don Graber, Huffy Corporation's chairman, president and chief executive officer, said in a press release.

"It is too early to assess the long-term impact on 2002 earnings, but the potential of Kmart store closures could result in reduction of sales," he said.

Kmart plans to close as many as 500 of its 2,114 stores during its reorganization.

"Naturally, as Kmart's business declines overall, it is only reasonable that bicycle sales will as well," said Nile Nims, president of Cycle Source, which also supplies bikes to Kmart.

"But Kmart's bikes are priced quite competitively, and they offer value overall. Competitors would pick up business if Kmart closed or pulled out of the category, but they have no plans for that as far as I know," he said.

Others said they anticipate that a portion of Kmart's sales will shift immediately to other discount retailers. Kmart has struggled to compete with lower-priced Wal-Mart and higher-quality Target.

With $218 billion in sales last year, Wal-Mart is poised to overtake Exxon Mobil on Fortune magazine's list of the world's largest companies. And Wall Street analysts said Wal-Mart could capture some of Kmart's nearly $40 billion in annual sales.

"I imagine it will have a rather negative effect on bicycle sales at Kmart, but the shortfall will be absorbed rapidly by Wal-Mart, Toys R Us and other Kmart competitors," said Chris Hornung, the chief executive officer at Pacific Cycles, which does not sell to Kmart.

Toys R Us, the second largest bike retailer behind Wal-Mart, is aggressively pursuing its own cost-cutting strategy.

Toys R Us will close 37 Kids R Us and 27 Toys R Us stores, and will eliminate 1,900 jobs. None of the stores listed for closure were renovated as part of the company's Mission Possible program.

"I'm sure it will affect sales, but those stores weren't high performance stores. The new layouts and concepts make up for the closings," said John Berman, Dynacraft's executive vice president.

Since joining Toys R Us from FAO Schwarz last January, John Eyler, Toys R Us' chief executive officer and president, has updated many of the company's 1,609 stores to the Mission Possible format, which features themed areas and better merchandising compared to the merchant's former warehouse-style approach.

"We view it as 100 percent positive. I am not the least bit concerned about Toys R Us," said Arnold Kamler, president of Kent International, which supplies bikes to Toys R Us.