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It's one thing to trail your competitors on pricing. After all, not everyone can be the king of everyday low pricing. But when you're losing the price war, and your stores are a mess, the hole you dig yourself into is one that's hard to crawl out of. It is therefore imperative that in the ongoing search for points of differentiation among the Big Three retailers, Kmart must take decisive measures to clean up its in-store act.

For years, Kmart has earned the unenviable reputation of having poorly managed stores known for their out-of-stocks and messy aisles. It was true in the '80s, the '90s and still exists today. On a recent field report at two Big K stores in the suburbs of Dallas, for example, DSN Retailing Today editors observed grocery carts full of unstocked or clearance merchandise blocking aisles, apparel littering floors, shelves running low on basic items like shampoo and milk, and new patio sets stuffed so close together it made comparisons impossible. The overall message to consumers was anything but inviting.

While the experience at these particular stores may not be typical, it does reflect disjointed execution at the store level that has haunted Kmart for years. Ceo Chuck Conaway has pledged to improve the shopping experience and therefore boost Kmart's sales, but most experts agree progress has been slow.

"You walk into a store and it feels like 1962. They've improved things to a degree, but it's not visible, it's not a meaningful improvement," said Tony Camilletti, senior vp at JGA Inc., a retail design and brand strategy firm in Southfield, Mich.

Now that Kmart is in bankruptcy, it will take some dramatic changes in the store experience if the retailer wants to survive. Giving customers a compelling reason to shop at Kmart and then delivering on an easy, pleasant shopping experience may sound simple, but putting it into practice is another issue.

One problem that has continually plagued Kmart is poor inventory management. Although Conaway's technology and supply-chain initiatives are making headway in this area--with in-stock levels improving from 79% to 86% during the past year--Kmart still lags behind the competition. More recently, the bankruptcy filing caused disruption as some vendors halted deliveries, though Kmart spokesman Jack Ferry said shipments are now up to 80%.

"They have to absolutely make sure they always have the merchandise in stock and their shelves are full. They also have to make sure those shelves are neatly displayed," said George Whalin, president and ceo of Retail Management Consultants of San Marcos, Calif.

This basic fundamental of retailing won't work if store management isn't diligent about execution. Wayne Hood, an analyst with Prudential Securities, said much depends on the local manager. Keeping shelves stocked and lines moving at the checkout won't happen with cutbacks in store payroll.

"They need to make sure there's adequate payroll hours allocated to the front-end cashiers. I was in a store a week ago here in Atlanta, and there were six people deep in the lines and two registers open," Hood said.

To Kmart's credit, installation of self-checkouts in 1,350 stores has sped up the checkout process. Kmart is now ringing an average of 12 items per minute, up from 10. But Conaway's rule about opening a new lane whenever there are three customers in a line hasn't been put into practice, at least not unilaterally.

Another element Kmart has failed to deliver on consistently is motivating associates to be helpful and friendly Bonuses for all associates tied to improvements in a store's customer satisfaction rating, or Super Service Index, haven't been the compelling motivator Conaway promised. In the third quarter, only 15% of Kmart's stores earned such bonuses. Overall, Kmart's SSI score had improved to 56% in the third quarter, up from 40% in October 2000.

"If you look at any great retail organization that has great customer service, it's become part of their culture," said Whalin, pointing to Wal-Mart in particular with its signature door greeters. Changing this, he said, takes time.

But there has been progress. A recent survey of 20,000 consumers by the University of Michigan showed Kmart had improved in customer satisfaction, gaining 10 percentage points to a rating of 74.8. Yet, Kmart still remains below the industry average, according to the American Customer Satisfaction Index survey.

With uncertainty regarding store closures likely affecting associate morale, a focus on customer service may be difficult at this time. But Ferry said the importance of improving in this area is driven home daily at all 2,114 stores.

"Every morning there's a huddle and those types of issues are addressed," he said. "The awareness is there, but as we've said for a long time, we have to get better on execution."

As for the look of the store, design expert Camilletti said decor in general merchandise departments is outdated. A decor package launched last year of pastel-colored signage is difficult to read and doesn't call enough attention to major brands in departments, such as Martha Stewart, Sesame Street and Jaclyn Smith. Camilletti also said some adjacencies didn't make sense or transition smoothly, such as Valentine's Day goods next to patio, and featured items aren't always in the relevant department, creating a "variety of mixed messages."

As for the grocery department in supercenters, he did say the new decor was vibrant and inviting, with nice touches like wood flooring.

But overall, Camilletti said a cohesive message is lacking. One suggestion might be to differentiate the exclusive brands into department worlds, creating what he called a "value mall of great, exciting merchandise stores."

And if Kmart's mission is to target busy moms, Camilletti said this message certainly isn't clear. The retailer could add a child's play area, shopping carts with baby carriers or maybe a loyalty card program for new moms.

Adding excitement to the store experience was the idea behind the Blue Light Special, brought back last spring after a 10-year hiatus. But some experts said it wasn't executed properly--with items such as crackers being promoted--and failed to deliver on the promise of a limited-time unbelievable deal that would draw shoppers into stores. In recent visits to Kmart stores, specials don't occur on the hour as initially touted, or even at all. At one Garland store, a prerecorded announcement about an upcoming Blue Light Special was barely audible and wasn't followed up with specifics on the item or where to find it.

"They took a perfectly wonderful icon and just exploited it to the point it became meaningless. It became just another price promotion," said Camilletti.

Whatever Kmart tries next, it must be tied to target shoppers needs to be effective. This means getting the products and services that busy moms want and delivering an experience that satisfies her needs. It also could entail a completely new merchandising approach if categories such as automotive, hardware and sporting goods aren't a drawing card for this shopper. So far, being all things to all people hasn't worked for Kmart, as the company's financial decline proves.