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The business economist at work: K mart Corporation.

The Business Economist at Work: K mart Corporation

KMART CORPORATION is a Fortune 500 service firm, the world's second largest retailer, with sales during fiscal 1988 of $25.6 billion. The corporation operates stores under several logos, among them K mart, Builders Square, Pay Less Drugs and Waldenbooks. Georgraphically, the company has operations in the United States, Canada and Puerto Rico. In addition, K mart furthers its international perspective through an equity interest in Coles Myer Ltd., a major retailer in Australia, and buying offices in the Far East and Europe.

The scope of operations at a multinational firm like K mart provides the business economist with a diversity of challenging opportunities. They occur at different corporate locations and demand varying levels of analytical intensity. However, for the sake of brevity, this discussion will focus on the day-to-day activities of the economist at K mart's headquarters in Troy, Michigan. This focus can best be accomplished by following the economist through a fictionalized day, exploring working relationships and the demands they place on the economist.

Our economist begins the day over coffee with associates in the Economic and Consumer Analysis area, a part of the Corporate Planning and Research Department. The early morning discussion revolves around ongoing projects: K mart store national, regional and market sales forecasts; pricing studies on regular and advertised items; analyses of consumer attitudes and perceptions of K mart and its competitors' performance on store choice attributes, as examples. The group, including market researchers, statisticians and economists, assess progress on these various activities, exchanging ideas on how to attack problems that have come up. Then they break up and head off to the central computing area or offices, as their tasks require.

At this point our economist receives a call from the head of Financial Planning. A meeting of the financial planning group, of which our economist is a member, has been called for later that morning. As part of this group, the economist provides a macro forecast for both the U.S. and Canadian economies. Today's meeting is to review the two-year outlook, prepared at the end of the third quarter, for any significant changes in business conditions since the group last convened. Over time, our prognosticator has convinced the accountants, financial analysts and merchants that national aggregates should act only as a starting point for analysis of K mart's future sales and profit performance. Therefore, in today's discussion our economist will outline significant changes in employment and income that have occurred in several MSAs in two regions of the country. These changes have altered projections for housing acitivity, which is important in determining sales of furnishings and related items at store level. The talk undoubtedly will turn to consumer response and how that might affect the market strategy of the company. With this information in mind, our economist is off to the Financial Planning Department.

After some time the economist finds himself back in his office, only to have the international legal counsel call for a meeting on an International Trade Commission (ITC) hearing coming up. Footwear manufacturers claim injury from imports, and they want global quotas imposed on all nonrubber footwear imported into the country. If the ITC rules in favor of domestic manufacturers and imposes quotas, K mart's ability to meet consumer demand at discount prices will be affected negatively. Having done position papers on trade for the company previously, the legal counsel wants our economist to come up with a consumer-oriented approach to fight the quota question. Our economist heads off to this meeting with an operations research person and a statistician. The approach, it is decided, will be to look at added costs to the consumer relative to the employment gains reported by the manufacturers. The outline of a program is developed and our economist returns to the office to begin work on this project.

As the noon hour approaches, the phone rings again. This time the Vice President of Public Affairs is on the phone asking our economist to drop by for a discussion on minimum wage and mandated benefits. As part of a critical issues symposium, the Vice President wants our economist to help in developing a presentation about the impact on retailing of a jump in the minimum wage. Our economist suggests a plan that starts with an analysis of who actually works at the minimum wage, the relative importance of these workers to various industries, and how employment would be affected by an increase in the minimum wage. This portion of the discussion ends with a time schedule being developed to accomplish the task.

Then the dialogue turns more general, as our economist and several of the Public Affaris staff look forward to the coming congressional session and possible business-related bills. Topics to be developed for the critical issues group are discussed: education, drug testing, mandated benefits, and health care, among them. Another date is set to look at the areas where Public Affairs would like our economist to begin producing position papers for them to review. At the same time, the Vice President goes over some outside appearances he would like our economist to make, as part of his effort to get the company involved in community discussion. At this point hunger pangs remind everyone that the noon hour has come.

The afternoon begins with our economist in the office of the Executive Vice President of the K mart store group. This meeting is for a more focused discussion of the regional economic and sales outlook for the discount stores. Included among the participants in this group, beside the economist, are a market researcher and statistician from the Economic and Consumer Analysis area and store operations people. The research group makes a semiformal presentation on changes in consumer attitudes toward the K mart shopping experience, and shifts in the sales mix at stores in a major K mart market. The group analyzes the data, with the economist injecting data related to changes in effective demand in the market. Then the discussion gets into possible competitor response, given these altered market conditions. This meeting ends, and the groups head back to their respective areas.

The Economic and Consumer Analysis group continues talking of the determinants of consumer demand on their way back to their offices. Together they sit down to go over data on item price sensitivity and its impact on the choice of products to be included in different advertising markets. This information is a major element in the group's upcoming meeting with the Marketing V.P., to whom they formally report. The economist works at explaining elasticity and the concept of inferior and superior goods, as it relates to changing income levels. This analysis helps explain some observed changes in the sales mix at several stores in the market previously under scrutiny. Further, given changing demographics in major metros in the South, this information suggests some new directions for merchandising and media approaches that the group will bring up with the Marketing V.P.

This topic naturally evolves into merchandise category analysis with the Operations Research (O.R.) people who make up the other half of the Planning and Research Department where our economist works. In addition to looking at the demand side of the sales equation with the marketing team, our analyst helps O.R. look at operating costs. As a consequence, the economist becomes involved with projecting cost inflation of factor inputs. Topics here include goods and services purchased for operational purposes as well as for resale. The work also includes regional differences in costs brought on by varying transportation charges and similar problems. Like the demand analysis, cost analysis is a major and continuing part of the economist's job at K mart.

The day ends for our economist back with the consumer group looking over strateginc markets where K mart has a high concentration of acitvity. Once again, the analysis is highly focused on consumer demographics, life styles and the business climate as it affects item movement at store level. A major presentation on these topics is coming up before the Executive Action Committee. Thus, the group works through the graphics and text with each member going over his or her parts of the program.

The preceding comments suggest the wide scope of involvement that the economist plays in the planning process at K mart. However, it does not touch all of the activities in which the economist can be involved for the corporation. Little has been said about the level of international analysis that goes on in support of the Canadian or overseas buying activities, and a great deal of effort in this direction does occur. Nor has the involvement in support of the subsidiaries been much discussed. In this regard, projects like those discussed here occur at their offices. Then, periodically, operatives from these businesses come in for planning reviews at headquarters. At the same time, field marketing personnel are constantly in touch with headquarters through our satellite communication system, relaying information on local conditions. Needless to say, the economist at K mart has an exciting and challenging position in this retail operation.

From these comments it should be obvious that the tools the economist brings to the world of retailing are much in demand. The analytic approach to problem solving comes into play at both the strategic and tactical levels in the business environment. However, I would caution any practitioner of the "dismal science" against too narrow a focus in academic preparation. Further, a tendency in the profession has overhauled "macro" analysis and econometrics. I hope that the "day" described in this piece will bring home the importance of studying consumer demand and the "micro" elements of the discipline.

In any event, the business economist should recognize that he/she will be called on to act as an applied scientist in work activity. The economist's superior, generally, is not interest in the theory of the Phillips Curve so much as the impact of tight labor markets on the firm's wage costs. He is not interested in hearing about the theory of price elasticity but rather prefers seeing its results in the market. Thus, the business economist must guard against being irrelevant by effectively translating the theoretical into understandable terms with respect to the firm's activities.

Robert E. Hayers, Jr. is Corporate Economist, K mar Corporation, Troy, MI.
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Author:Hayes, Robert E., Jr.
Publication:Business Economics
Article Type:company profile
Date:Apr 1, 1989
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