DETROIT — Kmart Corp., 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, the largest retailer in history to seek court protection from creditors.
The No. 3 discounter, which has long struggled to compete with Wal-Mart Stores Inc. and Target Corp., said that as part of its reorganization it will evaluate the performance of every store and the terms of every lease by the end of the first quarter and close unprofitable or underperforming stores.
The company’s fortunes took a sharp dive earlier this month after reporting disappointing holiday sales and a bleak earnings outlook, while rival Wal-Mart thrived. Debt rating agencies, including Standard &Poor’s and Moody’s Investors Service, steadily lowered their credit ratings, unsettling suppliers and investors. The company’s stock plummeted and it was removed from S&P’s benchmark index of 500 stocks.
Kmart stock was down 60 percent Tuesday, closing at 70 cents, down $1.04 from Friday on the New York Stock Exchange.
Analysts said they expect the Troy, Mich.-based company to close up to 700 of its 2,114 U.S. stores, but they want to see a more detailed plan and vision of what the company aims for.
The company said it will reorganize on a fast-track basis and hopes to emerge from Chapter 11 in 2003. The filing was made in U.S. Bankruptcy Court for the Northern District of Illinois, in Chicago.
"We are determined to complete our reorganization as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future," Conaway said.
But while Kmart figures out its business strategy, Kmart customers might find somewhere else to shop, Kozloff said. Filing for bankruptcy means the shelves aren’t going to be fully stocked the next day, something the company already struggles with, she said.
"You’re going to frustrate customers, and they’re going to go, and it’s going to be hard to get them back," Kozloff said.
Kmart has nearly $16.3 billion in assets, making it the largest retailer to declare bankruptcy. It has $10.25 billion in debt. Federated Department Stores Inc. and Allied Stores Corp., the American retailing divisions of Toronto-based Campeau Corp. — which later took on the Federated name — filed Chapter 11 in January 1990 listing assets of $9.1 billion.
Last week, Kmart named a new chairman, turnaround expert James Adamson, to replace Conaway, who remains chief executive. On Tuesday, Ronald Hutchison was named executive vice president and chief restructuring officer, a new position. Hutchison, 51, was most recently chief financial officer of Advantica Restaurant Group Inc., where he and Adamson were instrumental in the company’s reorganization.
The bankruptcy filing and interim financing was a relief for Kmart’s suppliers.
Copyright ©2002 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.