More lights out? Firms prep for Kmart closings
January 13, 2003,
New York — With Kmart's announcement of hundreds of additional store closings expected as early as today, home textiles suppliers and creditors will be forced to pare down significant portions of their business with the bankrupt retailer.
It will be a painful and potentially perilous process for some suppliers. A cut of 300 to as many as 500 stores from an 1,800-unit base will, at the very least, represent tens of millions of dollars in lost sales to the home industry, already hard hit by a brutal economy and rapidly shifting manufacturing base.
On the flip side, other home textiles firms continued to profess their loyalty and commitment to programs with the merchant, taking a "we swim together or drown trying" position.
Arguably Kmart's largest home textiles supplier, Atlanta-based WestPoint Stevens — itself struggling to successfully reinvent its business — declined comment on the impact of additional store closings. But Standard & Poor's just last week reaffirmed the company's "B" credit rating while reporting the outlook remained "negative." The S&P report didn't address the Kmart business specifically.
But longtime industry executives said the impact will be palpable.
"There are [home] suppliers that do a substantial part of their business with Kmart, and it will have a major effect on them," said Carl Goldstein, senior vp, S. Lichtenberg & Co., New York. He added, however, it would have only limited financial impact on his company. "[We'd] hope to pick up that loss with sales to other retailers," he said.
As of late afternoon Friday, there were no pronouncements from Kmart. Most manufacturers said they were hearing more from trade rumors and press accounts than from any actual communication about store closings from the company. But Kmart spokesman Jack Ferry indicated in a telephone interview that the closings would be made public this week.
"As part of our restructuring we've said that we'd complete [a store review] in mid-January in order to seek approval from the bankruptcy court at the January hearing," scheduled for the 28th of the month, Ferry said. "We will inform our store associates first.
"We try to stay in constant contact with our supplier base and keep them abreast of all the latest developments during our restructuring," he said.
A list of potential store closures reportedly has been circulating for at least two or three weeks — by some accounts, even longer — according to Bill Dreher, a retail analyst with WR Hambrecht.
"There's still a broad swath of stores that are underperforming," Dreher said. "When Chuck Conaway was ceo, he said one-third of Kmart's base was outdated and underperforming, but [they] didn't close that number. The next round of locations to be closed will [include stronger perfomers] than the last. The closed stores will be taken over by more profitable companies like Kohl's, Target and Wal-Mart, although Kmart's base overlaps with Wal-Mart," so they'd take fewer.
The company closed 283 stores last year, despite earlier speculation the closings could number as many as 600 stores. And many suppliers worried aloud that if the cuts were too extreme there would be a domino effect, forcing large-scale cutbacks in trade workers, factories and production.
"Obviously, if you lose a couple of hundred stores it's going to affect your business," offered Lou Morris, president/coo, Perfect Fit Industries, Charlotte, NC. "We assume they're going to close another couple of hundred stores. [But our] focus is more on what they're going to do with the remaining stores and how they're going to promote them — what the strategy is for the [remaining] stores."
That is the question on everyone's mind, it seems. For many, the waiting has been an agonizing process.
"We don't know what's going to happen with Kmart," said David Record, vp, national sales manager of Calhoun, GA-based Georgia Tufters. "We haven't personally heard anything yet or seen their report on holiday sales. Anything we have heard is rumor."
For Georgia Tufters, which has two placements for the Martha Stewart program, as well as another under Kmart's private label Galaxy program, any closings will represent a significant loss of business, and the company is seeking to soften the impact. The company has sold to Kmart intermittently for 15 years. but it's still preparing a backup plan.
"In the case that Kmart closes some of its doors, or worse, Georgia Tufters is in the process of developing new products in the hope of broadening its customer base," Record explained.
That push will first become visible during spring market with a fuller commitment to the strategy set for fall, he said.
The search for new customers will undoubtedly continue as shoppers search for new destinations. But the intrinsic nature of the home marketplace will remain essentially the same, offered Dave Stewart, executive vp, Sleep Innovations, West Long Branch, NJ. Most consumers will remain brand loyal, he argued. The challenge will come in adjusting to shifts in production demand
"Anytime there's a new norm, smart companies will shift with that new norm," Stewart said. "If you want to survive, you have to continually look at the landscape and adjust your business to it."
Most vendors continue to wait on tenterhooks for any Kmart news or insights as to the retailer's fate. Still others continue to embrace — indeed, lust after — the behemoth merchant's business.
Burlington Rug Corp., Atlanta, only last month became a first-time vendor to Kmart, with a single scatter rug program and has plans to add others later, according to John McLeod, vp, sales and marketing.
"The jury is definitely still out as to what will happen with Kmart, and we're keeping our eyes and ears wide open," McLeod said. "But we're impressed with some of the changes [Kmart] has made in its personnel as of late. People they had in some decision-making positions have been replaced with some new, good people."
Most companies, though, such as Scottsboro, AL-based Maples Rugs, don't plan on going anywhere fast insofar as their Kmart business is concerned. For them it's a matter of staying the course.
"We are still doing business with Kmart," explained Arnie Stevens, vp. "Their rug business is doing well right now and we are continuing to support that business. They are a very good customer of ours."