2010 International Conference on Science and Social Research (CSSR 2010), December 5 - 7, 2010, Kuala Lumpur, Malaysia

2010 CSSR 2010 Final Submission

Learning from Kmarts Mistakes: New Improvements on Mydin Hypermarkets Business Strategies
Normah Binti Omar, Zuraidah Mohd Sanusi, Norilmiah Abdul Aziz and Nor Ashikin Ismail Accounting Research Institute & Faculty of Accountancy, Universiti Teknologi MARA, Malaysia
Abstract In Malaysia, the hypermarket business is an extremely competitive venture. Beside the high amount of capital that one needs to invest in, the business also exposes new players to global and well structured competitors such as Giant, Carrefour and Tesco, to name a few. The current paper explores and describes the experiences of one Malaysian player, the Mydin Hypermarket in its quest to champion the local consumer market. A 2003 publication of a US bestseller entitled KMarts Ten Deadly Sins had a tremendous impact on the business strategy and future direction of the Mydin business in this country. Originally built in the 1990s to emulate the then highly successful K-Mart Superstore in the United States, the Mydin Business had to immediately change its business strategic direction. Premised on interviews, site visits, observation and document analysis, this article provides a qualitative narration and a discussion on the various counter strategies undertaken by the management of Mydin Hypermarket in order to avoid having to face the same fate as KMart Superstore. Today, the Mydin Hypermarket understands its niche. To remain relevant in this highly competitive business, Mydin Hypermarket needs to understand its customers, reckons the capability of its competitors and be at ease with technology as a strategic tool. The question now, has Mydin found its forte?. The paper further explores.
Keywords Consumer-driven strategy; hypermarket

business; customer-focus initiatives; hypermarket pricing I. INTRODUCTION

The Wikipedia defines hypermarket as a superstore which combines a supermarket and a department store. As such, a hypermarket represents a very large retail facility which carries an enormous range of products under one roof, including full lines of groceries and general merchandise. Theoretically, based on this definition, hypermarkets should be able to allow customers to satisfy all their routine weekly shopping needs in one trip. Though the format was pioneered in North America and Europe way back in the early 1960s, the hypermarket

concept spearheaded in the United States only in 1987 when Frances Carrefour business started its operation there. By early 1990s, USs three major discount chain stores Wal-Mart, KMart and Target had started developing discount stores in the hypermarket format. Hypermarkets typically have business models which focus on high-volume, low-margin sales and bulk purchases by consumers. A 2006 statistic by Bernama claimed that the Malaysian trade and distribution sector contributed 14.7 percent to the countrys gross domestic product (GDP). The total value in the wholesale trade sub-sector reached RM150 billion while retail sales increased to RM60 billion. The contribution of the sector to the countrys increased income also mirrors the consumers response to the establishment of hypermarkets and supermarkets in Malaysia. The hypermarket business is indeed a highly competitive venture. Beside high initial capital outlay needed to start and operate it, a hypermarket operator has to compete with other established, global players. In the context of Malaysia, the hypermarket business is mostly dominated by foreign names such as Giant, Carrefour, Tesco and Jusco. Very soon, another US-based big name, Wal-Mart, will join the hypermarket bandwagon and further makes the retail business more competitive. To date, one of the most prominent local, Malaysian-owned players in the hypermarket business is the Mydin Mohamed Holdings Bhd. Despite having to compete with established hypermarkets within the retail industry, the Mydin Hypermarket is today, a company that must be reckoned with. Mydin's emergence as a hypermarket has posed stiff local competition to major players such as Giant, Tesco and Carrefour. This paper discusses the evolution of the Mydin business from a small retail sole proprietor outlet in 1957 to what it is today, a reputable hypermarket in the country. The journey was indeed long and winding but as quoted by its Managing Director, it was all worth the travel. In the early 1990s, the Mydin business was built to emulate the business concepts used by the Kmart Superstore in the United States. Nevertheless, a 2003 publication of a US bestseller entitled KMarts Ten Deadly Sins had a tremendous impact on the business transformation strategy and future direction of Mydin Holding Berhad. The next section elaborates on the evolution of its business.

978-1-4244-8986-2/10/$26.00 2010 IEEE

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II.

BACKGROUND AND BUSINESS EVOLUTION

In 1957, Mr Mydin Mohamed founded a sole proprietorship business in Kota Baru, Kelantan. He had earlier left his previous business in Penang to his brother and moved his family to Kelantan. A few years later, Mr Mydins sons started another business venture in Terengganu. On 23 July 1991, MYDIN was incorporated under the Companies Act 1965, as a private limited company under the name of Melati Makmur Sdn Bhd. The incorporation was to take over the two earlier businesses of Syarikat Mydin Mohamed (a sole proprietorship) and Syarikat Mydin Mohamed Brothers (a partnership). In 1992, the company changed its name to Mydin Mohamed & Sons Sdn. Bhd. Subsequently on 25 June 2001, the company became Mydin Mohamed Holdings Sdn Bhd and is presently known as Mydin Mohamed Holdings Bhd. Today, after 40 years of service, Mydin currently owns 40 outlets throughout the nation which included: 2 Hypermarkets, 24 Emporiums, 1 Superstore, 7 Mini Markets and 6 Convenient Stores. The stores are strategically situated all over the Klang Valley, Terengganu, Kota Bharu, Seremban, Nilai, Johor, Alor Setar, Melaka, Penang, Pahang and Kelantan. Mydins earlier business in the Klang Valley was through its two emporiums which focussed mainly on selling economically-priced clothes and Muslim prayer equipment and apparel. Then the company further diversified its product lines to include other goods. Inspired by the earlier successes of Kmart Superstore in the United States, Mydin Hypermarket was comfortable to be dubbed as low cost or economically-priced discount store. The Mydin business was fast expanding. Following Kmarts footsteps, more stores were built or will be built either in the city or in shopping centres and more product lines were added without much thought of their impacts on the consumers. Soon after, the publication of a book entitled KMarts Ten Deadly Sins (Turner, 2003) totally changed the business landscape of the Mydin business. Kmart's Ten Deadly Sins spins an intriguing tale of the missteps of a retail giant who once had the industry in the palm of its hand and foolishly let it all slip away. As narrated by the Managing Director, Dato Ameer Mydin, he was on a business trip to the USA when he had the chance to read the book when it was launched. Wise men learn from other peoples mistakes and he could see then that Mydin either has adopted or will be adopting all of Kmarts wrong strategies. III. RESEARCH OBJECTIVES AND METHODOLOGY

To examine the business strategies adopted by the hypermarket in facilitating consumer satisfaction. The study is qualitative in nature. The data collection was carried out in three distinct but related phases. Phase One This phase comprised document analysis from business magazines and business websites. The aim here is to facilitate the researchers understanding of the nature of the hypermarket business, and in particular the business operation of Mydin Holding Berhad. Phase Two The second phase involved face-to-face interviews with three selected individuals from the company (Mr Mydin Mohamed, the founder; Dato Ameer Ali Mydin, the managing director and Puan Sabariah, corporate communication manager). The interviews allowed the researchers to ask specific questions about the business which were otherwise not available from the analysis in phase one. Phase Three This phase included observation and site visits to Mydin Holding Berhad and the Mydin Hypermarket. The visit enabled the researchers to observe the inventory system, product displays, payment counters and many others. IV. KMART TEN DEADLY SINS - COMPARED Kmart's cataclysmic collapse into the USs Chapter 11 Bankruptcy Protection in January 2002 offers a bracing reminder of how unchecked arrogance can undermine even the best-established brand. Kmart hits on a successful vision, but came to believe in its own infallibility and lost track of where it really stood in the marketplace. Prior to 2003,, Kmart was an icon to Mydin. The company was to emulate Kmarts business concepts. Table 1 summarizes the ten deadly sins committed by Kmart and supposedly to be emulated by the Mydin Hypermarket. Table 1 depicts a lot of parallels between Kmarts and Mydins mistakes. In terms of brand mismanagement, Kmarts mistakes can be classified into three different categories as follows: (1) Lack of strategic approach in terms of brand development No effort has been made to create its own brand. Instead the company simply decided to sign on more private label brands. Prior to 2003, Mydin too made similar mistake. (2) Kmart lost sight of its Value Proposition Though it was clear that Kmart was focusing on buy decent goods at great prices, such proposition was never stated or written. Over time, the company and the people lost sight of such value proposition. In its effort to emulate Kmart, Mydin was also set to embark on low cost business strategy. On the same token as Kmart, Mydin too had not clearly stated its value proposition.

3.

This study was carried out to achieve the following research objectives: 1. To understand the business evolution of a successful Malaysian hypermarket. 2. To evaluate Kmarts ten deadly sins as listed by Turner (2003) and to gauge their application to Mydin Holding Berhad

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(3) Lack of a Niche One of the key problems of Kmart was that it had not created a niche outside of pricing. Since it was the pioneer discount store in the USA in the 60s and 70s, it didnt need to initially. But over time, there were a lot of imitators, hence Kmart must create a niche product to differentiate itself from other discount stores. On the second mistake of not knowing its customers, Kmart was assuming that their customers would be everyone and everybody. No specific age or income groups were identified. Generally, the company was targeting everyone who lived within a certain radius of the store. Such assumption is detrimental. Researches have stressed the importance of customer identification (Liao, et. al., 2008; Phusavat, et. al. 2008), the need to do customer research (Hingley et. al., 2009, Shannon, 2009) and customer needs analysis (Burt, Et. al. 2009; Dolekoglu, et. al, 2009). Porters (1984) business strategy also included a category known as customer-focused strategy. Kmarts third mistake was underestimating the capability of its competitors. Specifically, Wal-Mart Discount Store that started its business at almost the same time as Kmart was never taken seriously by the later as its potential threat. In reality, Wal-Mart had been gaining on Kmart since its inception and Kmart didnt notice until it was too late. In dealing with competitors, one needs to have the edge in the following areas: continuously striving for excellence, competing for customers, use of latest technology, singleness of purpose, retaillink and perhaps on a more intangible note, involving employees. For Mydin, there was still a lot of room for improvements. The fourth mistake relates to lousy location. In the 70s and 80s, the superstore concept was relatively new and exciting. Kmart chose the city-focused strategy for its location. In late 90s and early 2000s, there was a shift in residential neighborhoods that ultimately drew customer base away from the city centres. Kmart was caught with its previous heavy investment and could not relocate its superstores. Similarly, Mydin started its first few superstores in the Kuala Lumpur city centre. Up until the late 1990s, store appearance has not been given much priority especially by those superstores whose business concept was focusing on low-cost business strategy. As such, products and merchandise are nor arranged and organized nicely. Sometimes the store design and product outlay appears dirty and cheap. This phenomenon had negatively affected the Mydin image in the late 1990s. On the issue of technology aversion, Kmart continued to use its old archaic computers. Kmarts IT problems, however had nothing to do with the amount of money spent on IT. It was the companys inability to adopt fully the technology made available. Instead, the company had relied heavily over judgments of its top management. Mydin on the other hand had had to make priority over the fund available within the company.

The seventh problem was related to the companys inability to effectively handle its supply chain management system. For Kmart, poor supply chain management had led to frequent stock outs and longer stock turnaround. Similarly for Mydin, it also had to endure stock outs and inability to service its customers effectively. The eighth problem involved the loss of focus or direction. In the case of Kmart, it began to lose focus when it started looking beyond its existing customer or product lines to expand its business. Mydin did not have this problem in 2003 because the company was very focused towards its goals. Nevertheless it was aware that it is inevitable that the company will be forced to face this problem in the future. The next issue dealt with specific business model being adopted by the business. Though they were involved with the low-cost business strategy, no specific business model was used by both companies (Kmart and Mydin) to implement the strategy. Unlike Wal-Marts business model that addresses selling a large inventory at rock-bottom prices to customer in rural areas Kmart used the wait and see approach. The last Kmarts 10 Deadly sins was repeating the same mistakes or inability to think from outside the box. Examples of repeated mistakes made by Kmart had included things such as starting fresh with each new management team; ignoring employees; Ignoring technology capability and lavish spending. Mydin had the advantage of learning from the experience of Kmart in the sense that it could either avoid the mistakes made by Kmart or create new strategies that never get proposed or implemented by the company. The face-to-face interviews with Dato Ameer Ali Mydin and Puan Sabariah, the corporate communication manager had unveiled some of the counter-strategies undertaken by Mydin Holding Berhad in order to avoid facing the same fate as Kmart. The next section elaborates on these counter strategies. V. MYDINS TEN COUNTER STRATEGIES TO FACILITATE CONSUMER SATISFACTION The information gathered for this section was obtained from three sources: the face-to-face interviews, document analysis and on-site observation. Table 2 summarizes the ten general counter-strategies formulated and adopted by the management of Mydin Hypermarket in order to avoid having to face the same fate as KMart Superstore. A. Development of its own brand Mydin has developed its own brand for some selected merchandise or product line sold in the store. The name chosen to represent it do not have any resemblance of the Mydin original brand. Other products would either carry their own private labels or use a generic label. The later is more apparent for products supplied by the local small and medium enterprises.

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B. Understanding the consumer Basically, Mydin has identified two groups of consumers: (i) enterpreneurs from among small grocers, hardware stores, stationery shops, clothes boutiques and (ii) other medium scale enterprises that play an important role in spurring entrepreneurship activity Like other retailers who accomplish economics of scale, Mydin purchases in bulk (a strategic advantage) to enjoy lower prices. Their business philosophy of wholesale pricing is thus fulfilled through their reduction of cost. C. Managing the Competitors by Specializing in HalalWide Product Lines Despite its basic focus of supplying low-cost products, Mydins other competitive strategy is through its full range of halal and Muslim products. Only halal products are sold in the store and the store provides a complete range of religious products include those attires needed to perform the Hajj. Nevertheless, Mydins customers are not limited to Muslims onle. A good range of nonMuslim also shop at Mydin. D. Multiple Locations Mydin stores are located in multiple locations. The city centre emporium cater for office workers who may want to shop either during their lunch break or after office. Mydin outlets are also opened in less developed states where competition was close to nil and where costs were extremely low. At other places, the current trend is to place the stores in areas that are accessible to homeowners and traders, such as in small residential towns as well as the congested Kuala Lumpur. E. Store Appearance True to the name of its loyalty card Meriah, Mydin has been deliberate in ensuring that the external and internal appearance of its hypermarket is nice to look at and a joy to be in. Products and other merchandise are nicely and neatly arranged. The queuing lines at the payment counters are generally short as more counters are opened during peak shopping hours. Mydin has also engaged the service of psychologists in deciding the best arrangement for the local SME products. F. The Use of IT and Technology Immediately after 2003, the company invested heavily in technologies in order to enhance its IT capability. MYDIN deployed 30 units of CK61 mobile computers which are integrated with EX25 near-far scan engine to scan 1D and 2D barcodes. As a retail and wholesale company, one of the most important systems is the companys asset tracing and inventory system. With the latest technology, even the Managing Director (through a dashboard system) could get easy access on the status of the company inventory. G. Improved Warehouse Management System As the technology capability of the company was enhance, the company has also enjoyed the efficiency and effectiveness of its warehouse inventory system. Every item is bar-coded for easy accessibility. H. Staying Focus One important lesson learnt from the Kmart fiasco is never to lose focus of ones business direction. To ensure

low-cost, the company always practices bulk purchases and bulk selling. At the wholesale counter, products are generally packaged in sets of three. Mydin managed to get low cost for the products purchased from the SME operators as the company always practice bulk purchases instead of getting the products on consignment. I. Business Model To encourage bulk purchases, customers get to become Mydin Trade members and they would be given the Meriah loyalty card. Through such card, the purchase cost is much lower. The use of the theme Shopping at Mydin is Fardu Kifayah further inculcate the sense of trust among members. J. Continous Improvement

They are various improvement programs being carried out contimuously by the Mydin Holding Berhad. Staff trainings are mainly carried out in-house in the companys own training rooms. The company also practices transparency in its reporting. In ensuring that there is no conflict of interest or abuse of power among top management and employees, the company practices an in-house code on good governance. HAS MYDIN HYPERMARKET FOUND ITS FORTE? As a low-cost hypermarket, Mydin sells diversified products. Nevertheless, its niche is in two groups of product lines: (1) Made in Malaysia products and (2) Muslim/Halal products. For many among the Malaysian entrepreneurs, there is always an aspiration to see their products being offered for sale on the shelves at hypermarkets nationwide. In view of this aspiration, the Mydin Hypermarket tagged along with the governments Buy Malaysia Campaign. Hence in early 2009, the Mydin Hypermarket has offered the government to use its hypermarket and superstores as the launching ground for this campaign. Under the Domestic Trade and Consumer Affairs Ministry, the campaign would be continued nationwide until end of this year. To help with this initiative, the company has invited local producers (particularly from the SMEs) to set up booths in and around the Mydin Hypermarket. Rather than getting the products consigned, Mydin takes the option of buying these products in bulks so that it could fetch a much lower price from the producers. To further promote these local products and to enhance their visibility to the customers, Mydin has also arranged these products at eye level. In tandem with its 1990s Muslim concept, Mydin continues to specialize in Muslim products. This includes selling Muslim apparels, Hajj attires, and Halal products. Mydin has also undertaken the responsibility of not selling any non-halal products in its stores. The hypermarkets and emporiums cater for almost any need that fall into the categories of worship, apparel, accessories, food, household goods, travel, fittings and furnishings, electronics, cars, digital technology, children and even exercise equipment. In a nutshell, if the product is not haram, it is there. Today, Mydin has become a one-stop centre not only for Muslims, but for non-muslims as well. VI.

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A. Managerial Implications Smart and wise people learn from the experience of others. This is very true in the case of Mydin Holding Berhad. The quick thinking and action of its managing director Dato Ameer Ali Mydin to counter all the deadly sins committed by Kmart Superstore had given the company a fresh start. Mydin's emergence as a hypermarket has posed stiff local competition to major players such as Carrefour, Giant, Tesco (and soon, WalMart). Even as a hypermarket offering groceries similar to the international hypermarket range, Mydin is able to undercut prices by a reasonable percentage. In a recent interview with Mingguan Editor (a Malaysian business and economic newspaper), Managing Director Dato' Ameer Ali Mydin revealed that Mydin's hypermarket was set to reap profit of MYR1 billion (approximately USD310 million) annually. Despite their humble origins, MYDIN has emerged as one of the top players in Malaysias competitive hypermarket industry. Due to its low pricing strategies and economically-priced goods, the company have been experiencing significant leaps and bounds in spite of the recent price hikes occurring in the country. Its core business activities are mainly wholesale and retail. Mydin sells a broad range of domestic goods and its stores provides everything ranging from foodline, soft line, hardline and household items. In addition to that, they also

stock up an assortment of daily supplies of Muslim goods to the selected consumers. REFERENCES
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