Kmart cut off by primary supplier as problems mount

Associated Press

DALLAS — Kmart Corp.’s troubles escalated Monday when its primary food and consumables supplier cut off most shipments due to the troubled discounter’s failure to make its regular weekly payment.

Fleming Cos., based in suburban Dallas, said Kmart owes it $78 million.

Fleming is the latest large supplier to have stopped shipping to Kmart to reduce its risk if the company files for Chapter 11 bankruptcy. Scotts Co., a maker of lawn and garden products, decided last week that it would delay shipments to Kmart. Meanwhile, many smaller suppliers have stopped shipping or have demanded cash on delivery.

However, the latest development poses the biggest crisis for the discounter, whose grocery offerings drive traffic. Kmart is already faced with increasingly bare shelves.

"It’s one thing if you don’t have T-shirts or lawn products. You can live without the deliveries for a week or so, but you can’t sell yesterday’s wilted lettuce," said Kurt Barnard, president of Barnard’s Retail Trend Report, based in Montclair, N.J. "The company is fast approaching the end of its available options — either to file for bankruptcy or extend its financing. Something has to happen very fast."

Barnard said that Fleming’s action could further undermine confidence among vendors, prompting more suppliers to stop shipping to Kmart.

Kmart officials could not be reached on Monday.

Meanwhile, Charles Conaway, Kmart’s chief executive, said in a statement Monday that the company was hopeful business would resume with Fleming "once we work through these financial issues."

Kmart has been on a downward spiral since announcing on Jan. 10 that it did no better than break even for fiscal 2001 because of disappointing holiday sales, and said that it was in discussions with its lenders about its financing.

Ratings agencies downgraded Kmart’s credit, its stock plunged and the company was removed from Standard &Poor’s benchmark index of 500 leading stocks. There’s been widespread speculation of a bankruptcy filing, but company officials have declined to comment.

Last Thursday, Kmart removed its president and named turnaround specialist James B. Adamson as its new chairman, replacing Conaway, who remains as chief executive. The management changes were in an effort to gain confidence of lenders, suppliers and investors.

But Kmart’s continued silence about its financing plans is increasingly angering suppliers.

"They’re not doing an effective job in communicating to their vendors," said an executive with a toy manufacturer, whose business with Kmart accounts for less than 10 percent of the company’s total sales. The executive wanted to remain anonymous.

He added that the toymaker is holding off on shipments, and said that in a better economic climate, he would have been more accommodating. However, in the wake of a string of bankruptcies, including Ames Department Stores and Zany Brainy, the executive said he just can’t afford to take any risks. "We’ve been nailed too much," he said.

While some companies continue to ship to Kmart, they fear that the discounter’s woes could hurt their own brand. Martha Stewart told Newsweek in an article in its upcoming Jan. 28 issue that Kmart’s troubles pose problems for her brand of household goods, which are sold exclusively at Kmart.

The Martha Stewart brand is Kmart’s largest volume-producing line, generating $1.5 billion in sales last year.

Copyright ©2002 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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