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Kmart’s Rocky Road: $1B Creditors Reject Bankruptcy Exit Plan

Just when Kmart thought it had bankruptcy court approval of its reorganization plan all sewn up, a few creditors are throwing up roadblocks.

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Day also said that Kmart has improved its inventory management practices, resulting in "noticeable progress" in keeping its store shelves stocked with popular items. As reported, maintaining ample inventory has been a major complaint among shoppers in the past. The ceo said the chain reversed the negative trend in part through "improved inventory replenishment forecasting, implementation of new controls on the inventory buying process, reduction in the number of corporate employees authorized to give final approval to purchase orders to just 30 from 220, and increased ordering discretion granted to store managers."

As part of its restructuring, Kmart has returned to its strategy as a "promotional" high/low retailer focused on exclusive brand offerings. Among those proprietary brands are Martha Stewart Everyday, Joe Boxer, Disney, Sesame Street, Route 66, Jaclyn Smith, Kathy Ireland and Thalia.

Last week, the unsecured creditors of Kmart Corp. nominated Douglas Smith of Chicago-based Huron Consulting Group to chair the Kmart Creditors Trust. Subject to bankruptcy court approval, Smith, a bankruptcy restructuring specialist, would be responsible for pursuing lawsuits that could arise from Kmart’s internal review of its former stewardship and maximizing recovery for the benefit of Kmart’s creditors and shareholders. Smith’s responsibilities would begin once the discounter exits Chapter 11.

After it leaves bankruptcy court, Kmart is set to pay nearly 8,000 employees emergence bonuses. The total cost of the program is expected to exceed $100 million. Kmart has paid out a portion of the payments in two installments during fiscal 2002 as part of its retention plan. Day said in a court affidavit that he would receive an emergence bonus of $1 million.
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