Kmart seeks bankruptcy protection

Journal Record, The (Oklahoma City), Jan 23, 2002

DETROIT (AP) -- Kmart, the discount chain that gave America the BlueLight Special and introduced Martha Stewart home fashions at cut- rate prices, filed for Chapter 11 bankruptcy Tuesday.

Kmart becomes the biggest retailer in history to seek court protection from creditors.

The nation's No. 3 discounter had long struggled to compete with Wal-Mart and Target, and went into an alarmingly steep slide after a disappointing holiday season. Over the weekend, it failed to pay its top food supplier $78 million.

Analysts said they expect Kmart to close about 300 of its 2,114 U.S. stores. Kmart said only that it will close weak stores and that it expects to emerge from Chapter 11 next year.

"We are determined to complete our reorganization as quickly and smoothly as possible," Chief Executive Chuck Conaway said.

Kmart, which has 275,000 employees, said it has secured $2 billion in financing to keep going.

On the New York Stock Exchange, Kmart closed down $1.04 at 70 cents. Its stock had traded as high as $13.55 last summer.

By the time Kmart figures out its business strategy, customers may have found somewhere else to shop. Analysts said filing for bankruptcy means the shelves are not going to be fully stocked, something Kmart is already struggling with.

"You're going to frustrate customers and they're going to go and it's going to be hard to get them back," said Emme Kozloff with Bernstein Sanford.

The first Kmart discount store was founded in 1962 and the chain got its official badge in 1977, when the S.S. Kresge Co. changed its name to Kmart.

Kmart introduced the BlueLight Special in 1965, flashing blue police lights in the aisles to lure customers to discounted items.

The Martha Stewart Everyday brand, which includes sheets, towels, paints and kitchenware, is Kmart's largest volume-producing label, generating about $1 billion in sales last year.

Stewart has a provision in her contract that allows her to exit Kmart in case of bankruptcy, but such a move has to be approved by a bankruptcy judge. Martha Stewart officials did not return calls for comment.

Kmart has nearly $16.3 billion in assets, making it the largest retailer ever to declare bankruptcy. Federated Department Stores, with $9.1 billion in assets, was the biggest when it filed for bankruptcy in 1990.

Last week, Kmart ousted its president and named a new chairman, James Adamson, to replace Conaway, who remains as chief executive. On Tuesday, it named Ronald Hutchison as the head of its restructuring.

Hutchison, 51, was most recently chief financial officer of Advantica Restaurant Group, where he and Adamson were instrumental in the company's reorganization.

The bankruptcy filing in federal court in Chicago was good news for Kmart's suppliers, including food wholesaler Fleming. The company cut off shipments Monday, saying it was owed $78 million.

Fleming said Tuesday it intends to resume deliveries to Kmart "upon receiving satisfactory assurances from Kmart, via the bankruptcy court."

Other suppliers have delayed or stopped shipments to Kmart, but the bankruptcy filing is expected to restore their confidence.

Still, "the one thing Chapter 11 can't solve is the quality of actual merchandise and sales," said bankruptcy expert Martin Zohn of Proskauer Rose.