Kmart Files for Bankruptcy

By: Mark Tran

Kmart today became the largest US retailer to file for bankruptcy protection as the discount giant succumbed to competition from rivals Wal-Mart and Target.

America's second-largest discount retailer, which began business as a "five-and-dime" store in Michigan in 1897, blamed a rapid decline in its cash reserves resulting from disappointing sales and earnings in the fourth quarter and the loss of supplier confidence.

Yesterday, Fleming, a major US distributor of grocery products and Kmart's sole grocery supplier, suspended shipments after Kmart failed to make a regular weekly payment. Scotts, a maker of lawn and garden products, also said it stopped shipments to all Kmart stores.

The retailer, known for its "Attention Kmart shoppers" public announcements, has struggled in the fiercely competitive discount market and has seen the major credit rating agencies cut their ratings for its debt in recent weeks. Fitch, Moody's and Standard & Poor's all rate Kmart's debt as "junk" status.

Kmart, which employs 250,000 people, said it had secured $2bn (£1.4bn) in financing to allow it to operate while it is reorganising. Kmart said its 2,114 stores continue to operate as the company restructures, but the future of all stores was under review.

"We are determined to complete our reorganisation as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future", Charles Conaway, Kmart's chief executive officer, said in a statement.

Kmart's bankruptcy declaration is the largest in the retail business in the US since Federated Department Stores filed for Chapter 11 in 1990 and emerged from bankruptcy two years later.

Federated Department Stores at the time had assets of $11.4bn when it filed in January 1990. Kmart's assets in its latest filing with the securities and exchange filing were just over $17bn.

Kmart failed to make gains over Christmas. The company said that for the five-week period ended January 2 2002, the close of its fiscal year, net sales slipped 1% on a same-store basis from the previous year.

Total net sales for the period were $5.52bn, down slightly from $5.54bn for the same period last year, Kmart said.