The agenda at Kmart - rebuilding strategies

Discount Store News, April 15, 1996 by Laura Liebeck

TROY, MICH. - Rebuilding Kmart continues to be an arduous task. In the past few weeks, the retailer has:

* Secured $3.7 billion in credit from Chemical Bank to replace about $3 billion in debut due in 1997;

* Joined the nation's largest private, industry-led information superhighway consortium in an effort to better serve its customers - whether they're shopping at Kmart or from home;

* Solidified a television advertising campaign around Hollywood celebrities Penny Marshall and Rosie O'Donnell;

* Hired more new executives and board members;

* Filed to sell nearly 4.7 million shares of its Thrifty Payless Holdings.

In addition; top company executives are preparing for a May "road show" with retail analysts prior to the May 21, annual meeting. Last month, chairman Floyd Hall and Warren Flick, president of U.S. Kmart Stores, held a teleconference with analysts and met with a group at Merrill Lynch to discuss ,and outline their plans to revive the ailing retailer.

Since then, a bevy of new executives have joined and left Kmart. Among the newcomers are: William "Pat" Weber, vice chairman of Texas Instruments, and Steven Bollenbach, ceo of Hilton Hotels Corp., to the board of directors; Teresa Meichner to divisional vp, lingerie, fashion accessories and hosiery, previously merchandise manager of Lingerie Cacique; and Judith Rusch to divisional vp, systems development, previously director, store systems for The Disney Stores. Thomas Downs was promoted to divisional vp, international and off-shore retailing from merchandise manager for appliances and electronics. Ken Watson, executive vp, marketing, left after just 18 months on the job.

Kmart continues to be dogged by doubting Thomases, and now the retailer is being needled by The International Brotherhood of Teamsters and the Union of Needle-trades, Industrial and Textile Employees (UNITE). Last month, the Teamsters filed a proxy solicitation encouraging, among other things, that Kmart consider selling or merging the company to enhance shareholder value. In response, Hall sent a letter to all Kmart, institutional stockholders on April 5 asking them to reject the, Teamsters' proxy. UNITE also accused that retailer of racism, concerning wages paid to workers at Kmart's Greensboro, N.C., distribution center.

The Teamsters' union group calls itself the Kmart Independent Shareholders' Committee. Its representative is the man whom it hopes to get elected to Kmart's, board: Stephen Hester, a senior partner at American Capital, strategies Ltd., an investment banking firm specializing in corporate restructurings and employee stock ownership.

In addition, KISC wants to eliminate board classifications and the non-employee directors' retirement plan. The group is recommending that long-term directors not be re-elected to the board - and won an early round. Long-time board member Gloria Shatto, specifically identified by, the union for removal, announced she will retire effective May 21.

These issues will be included in Kmart's proxy materials for the annual meeting.

While Kmart wrestles with the union, it remains focused on building its financial structure through the $3.7 billion credit facility supplied by Chemical. Under, the agreement, Chemical Bank is arranging a program that includes $2.5 billion in revolving credit, $1.2 billion in a term loan and another $500 million in a good faith move. The rest will be syndicated among a group of financial institutions. The agreement is conditional. Kmart must sell at least $750 million in convertible securities, a program long-publicized and in the works.

The agreement "will give us the financial stability and flexibility we need to properly execute our new merchandising, marketing and operational initiatives," Hall said.

The $3.7 billion package will be backed by liens on Kmart assets. The liens will be removed when K-mart pays back $600 million and meets certain financial performance targets, or when its credit rating by the two major rating agencies is increased above junk bond status.

On the business front, K-mart last month joined the, National Information Infrastructure Testbed, the nation's largest private, industry-led information super highway consortium. Eventually, it will develop a "Retail Store of the Future" to assess how advanced computers and telecommunications can boost customer sales and ultimately customer service. The details have yet to be solidified, but are supposed to include consumer tracking systems.