Kmart Set for Bankruptcy Exit, but Tougher Problems Loom

Kmart is one step closer to starting the next chapter of its corporate life, as a bankruptcy court has OK’d its reorganization plan. Here’s...

Julian Day

Julian Day

Photo By WWD Staff

NEW YORK — Now comes the hard part for Kmart Corp.

Late Tuesday night, the Chicago bankruptcy court finally confirmed the retailer’s reorganization plan, paving the way for a May 5 emergence from Chapter 11 after resolving more than 180 objections from creditors.

Julian Day, Kmart’s president and chief executive officer, said in a statement, "The actions we have taken to restructure Kmart will continue at a rapid pace. Upon emergence, we will be able to put an even greater focus on strengthening the company’s operational and financial performance."

For many Kmart observers, time may be the retailer’s worst enemy — not to mention the historic inability of bankrupt retailers to return to solvency and vitality.

Richard Hastings, chief economist for Bernard Sands, a credit reporting service, said, "After emerging from one of the most aggressive and audacious bankruptcy turnarounds ever achieved on this scale, Kmart competes with a wide range of retailers with powerful spending budgets and rock-solid market positions. Walgreen’s, Costco, CVS, Family Dollar, Dollar General, Big Lots, Kroger, Kohl’s, Target Stores and Old Navy each represent competitive issues for Kmart going forward.

"Kmart now competes against time to instantly fix up problems created by more than 15 years of mismanagement."

However, Bernard Sands’ vice president and director of credit, Bob Carbonell, indicated the firm was "approving all client orders for Kmart."

According to at least one credit source, "Kmart probably has at least a three-month grace period where they will have to show some positive results or [certain financial institutions] are going to give them grief over Christmas."

One factoring firm, which has previously approved substantial orders, will wait for the "smoke to clear." An executive at the firm said, "We’re just not sure we have a survivor here. The major suppliers are Sony, Timex, Sunbeam and all the branded merchandise carried in the store. Most of those firms are not factored. We are waiting to see how much independent risk these suppliers are willing to take and whether they are willing to ship at prebankruptcy levels even with the closure of 600 stores. If not, how will Kmart get its shelves stocked?"
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