As part of a re-examination of all its operations, Kmart is considering whether it should begin buying music directly from the majors, instead of using its rackjobber, the Handleman Co.

As part of a re-examination of all its operations, Kmart is considering whether it should begin buying music directly from the majors, instead of using its rackjobber, the Handleman Co.

Kmart has about 1,500 locations; combined, they generate about $200 million in music business. Since the turn of this century, when Kmart's music volume was about $450 million, the chain has emerged from bankruptcy, closed some 600 stores and sold off another 100 or so. Now, new management is trying to remake the merchant.

In addition to copying the Target Stores model and buying directly, Kmart is also considering using other wholesalers or changing its model with Handleman, sources say.

"This goes beyond music; they are scrutinizing every aspect of their operations," one executive familiar with the situation says. "When they look at music, they see a long-standing marriage that might have gotten a bit stale."

"They seem pretty mad at Handleman," says one major-label distribution executive. "They think Handleman doesn't service them well and doesn't have the right assortment. They want to have a Target model with fewer SKUs.

"But I can't understand why they think Handleman is bad," the exec adds, "because we think they are one of the best racks we have."

Similarly, another distribution executive says, "Kmart doesn't understand the business, and they don't have a strategy. Handleman is doing a great job; the issue is not the supplier."

Another executive notes that a while back, Wal-Mart considered going direct instead of relying on its racks, Anderson Merchandisers and Handleman, but in the end remained where it was. Having "made sure that its racks add value," Wal-Mart's decision to stick with the two companies validates their service, the exec says.

Handleman and Kmart executives either were unavailable or did not return calls for comment.