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...

The factor said he doesn’t want to put his clients at risk in case Kmart has a tough time surviving outside of Chapter 11. "As you know, if factors don’t like what they see right before shipment, they can pull the plug prior to delivery. Their clients better have a second home for those goods in case factors do pull the plug. We just won’t do that to our clients because its not fair to them."

Another retail source said that how well Kmart does during the back-to-school sales season will affect Kmart buyers’ abilities to purchase gray goods for shipment during late fall and holiday.

Of course, Kmart comes out of bankruptcy as a $25 billion a year retailer that still has enormous clout with vendors. Kmart is still the largest account of numerous vendors. Many of them are on pins and needles. How Kmart fares will determine their own financial health and longevity.

A midsize apparel vendor observed, "We used to have an account at Kmart and decided to exit that business fairly early in the bankruptcy. We just didn’t want to take that risk anymore. My company still does business with Wal-Mart and with other department stores. But even after Kmart exits bankruptcy, I know my company is not going to try to do business with them again."

Hastings noted, "Trade vendor relations will remain an issue for years to come, and at the first sign of trouble, trade vendors will respond with a challenging level of anxiety. Kmart’s survival does not require perfection, but it does require a continuation of the same sense of urgency, discipline and purpose that helped them turn around their bankruptcy so quickly."

Others aren’t so sure Kmart has done enough.

James Harris of the investment banking firm Seneca Financial Group, who worked on the restructuring of Federated Department Stores during its bankruptcy tour, said, "My own view is that Kmart really hasn’t reorganized. It closed some stores, got some cash and reduced some of its debt load. In terms of what it needs to do, such as refocus its store base and fine-tune who its targeted customer should be, the company just hasn’t done any of that. Even its merchandise is still more expensive than some of its competitors. Why would consumers want to pay a premium at Kmart?
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