They saw big box discount retail as the future and were not entirely wrong, but never did quite turn Kmart around to be a strong competitor to Walmart.
Yes they thought catalog sales were in the past and did not understand they could have used their catalog system to move to online shopping. It has not been that long ago that people were saying online shopping would never catch on. If they had invested in online shopping instead of Kmart things would be far different for Sears today.