KMART IS one of those institutions that the American public just expects to have around for ever. But Woolworth was like that too and it has been absent from the US retail scene for half a decade. Kmart yesterday filed for bankruptcy protection. Whether it will ever emerge again, no one can say.
The troubles at Kmart have been mounting for weeks. Its discount stores fared poorly over Christmas. It had trouble buying surety bonds from insurers to cover some of its liabilities. And then on Monday its sole grocery supplier, Fleming, said it would not ship to Kmart any more. The board, which decided to file for bankruptcy protection late on Monday evening, really had no options left.
Kmart hitting the wall is shocking even so. It is the largest bankruptcy filing by a US retailer ever. The company is America's second largest discount retailer, after Wal-Mart, and remains one the country's most important employers with a payroll of about 250,000. It has 2,100 outlets and is present in every US state.
Now its directors must move quickly to recover. They plan to clip about $500m (pounds 350m) from its costs in an attempt to emerge from bankruptcy by 2003. This will include closing about 350 outlets. Because of US bankrutpcy provision, Kmart can ease out of leases it would otherwise have been bound to honour.
"We are determined to complete our reorganisation as quickly and smoothly as possible," said Kmart's chief executive, Chuck Conaway. Mr Conaway, the former head of the CVS chain of chemists in the US, was relieved of his position as president of Kmart Corporation by the board earlier this month.
Kmart, which has its headquarters in Troy, Michigan, said it had secured a $2bn senior secured debtor-in-possession financing facility from Credit Suisse First Boston, Fleet Retail Finance, General Electric Capital and JP Morgan Chase Bank.
Analysts wondered whether it was realistic to imagine Kmart shedding bankruptcy protection next year. Debra Weinswig at Bear Stearns in New York said: "There is a great deal of work here to be done in a very short amount of time. I think we will definitely see a much slimmer Kmart, but there are other issues out there that could lead to Kmart's overall demise".
Among those issues is the relationship between Kmart and Martha Stewart. Kmart has an exclusive deal to sell an array of products, including sheets, towels and kitchenware, bearing the name of Ms Stewart, America's best- loved guru of home style and affordable domestic elegance. Previously, Ms Stewart had no leeway to walk away from the contract, but the bankruptcy filing is likely to change that.
Some analysts on Wall Street believe Stewart Living Omnimedia, the corporation Ms Stewart heads, will take advantage of the bankruptcy laws to break free from Kmart and find alternative outlets for its products. Other retailers, such as Sears Roebuck, might jump at the opportunity.
For Kmart, a rupture with Ms Stewart would be crushing. "Losing that franchise would be devastating to their operation," …