Ch. 11 shakes up vendor relation: Payment concerns suspend some product shipments - Statistical Data Included

DSN Retailing Today, Feb 11, 2002 by Mike Duff

The potential for conversions will be impacted by store closings Kmart undertakes while in bankruptcy. While no umber has been set yet, Deborah Weinswig, a Bear Stearns analyst, on Jan. 11 down-graded Fleming--just a few weeks after launching coverage on the company--from buy to attractive.

One consideration was potential Kmart store closings. Weinswig made the move not because of Fleming's performance, but because "uncertainty at Kmart may lead to near-term weakness in the share price," she stated. Kmart's business represented 20% of Fleming's business in 2001, she estimated, and could account for 27% in 2002. The contract between Fleming and Kmart called for the retailer to buy $4.5 billion from the supplier this year. Weinswig moved Fleming from attractive to neutral on Jan. 22.

Yet the potential of the Fleming/Kmart paring remains, said Boyd. "If they close underperforming stores that are a higher cost for us to service, then we can both look for where the greatest opportunities are. With that piece of the business, we still see growth opportunities," he said. Thus, in the Kmart gloom, voices of optimism persist.

VENDOR                      MONEY OWED
                         (in millions)

Fleming                          $75.8
Handleman                        $63.7
Buena Vista Home Video           $56.3
Nintendo of America              $44.9
Mattel Toys                      $44.1
Twentieth Century Fox            $34.2
Universal Music & Video          $30.8
Sara Lee                         $28.4
Combine                          $22.9
Duracell                         $22.9

Many of the industry's leading vendors were among the largest unsecured
claim holders named in Kmart's bankruptcy filing. Above is a list of the
top 10 vendors, ranked by the amount they were owned at the time of the
filing.

(Note: According to subsequent releases issued by many of these vendors,
Kmart is no longer indebted to them. As a result, most have resumed
regular shipments.)

Source: Company reports and DSN Retailing today research