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Kmart suppliers feel impact of bankruptcy filing

With one of the largest retail chains in the nation now in Chapter 11, Kmart's suppliers face the possibility of losing one of their biggest customers, not to mention substantial payments for merchandise, in amounts that may be devastating to some.

Biederlack of America, the nation's third largest throw supplier, took a $3 million hit on the Kmart bankruptcy —almost 7 percent of the company's annual sales of $44 million, said Peter McCabe, executive vp.

Adding insult to injury, the fate of another of Biederlack's largest customers, Fingerhut, remains up in the air after Federated Department Stores said it's looking to unload the catalog business.

"It's only January, and already all the blood has been sucked out of this year, between Kmart and Fingerhut," said McCabe.

David Hollowell, marketing chief of blanket supplier Charles D. Owen Mfg., said his company is home free on Kmart. "Zero. We're factored."

And it's a good thing, since Kmart is a big piece of Owen's business, about 10 percent of total sales. "Other than Vellux, we had pretty much all of their blanket business last year," Hollowell said.

With DIP financing in hand for Kmart, Owen is preparing to ship. "The only thing we are negotiating now is the terms. If we can get the terms thing straightened out, we'll be in real good shape."

WestPoint Stevens, which produces the Martha Stewart Everyday line of bed and bath linens, said it has adequately reserved for any uncollectable amounts for receivables from Kmart, though it expects no material impact on its financial results. The company is withholding further comment until its Feb. 7 conference call to review fiscal year results.

Dan River, which produces bed in a bag for Kmart, also said it does not expect Kmart's Chapter 11 filing to have "a material adverse effect on its ability to successfully implement [Dan River's] current business plan." However, the company has increased its bad debt reserve for the fourth quarter of 2001 and announced that an agreement it forged early this month with a third party should "mitigate" the impact of the bankruptcy filing on the mill's finances.

"While we regret that Kmart was required to seek Chapter 11 protection, we continue to view our partnership as strong and viable and look forward to a mutually successful relationship for many years to come," said Joseph Lanier, ceo.

At the time of the filing, Kmart owed Martha Stewart Living Omnimedia about $13 million. But despite Kmart's troubles, retail sales of the enviable Martha Stewart Everyday line grew 25 percent in 2001, said Sharon Patrick, MSO's president and coo.

Company founder Martha Stewart said in a statement that she will stick by the retailer "for the foreseeable future" and not pull out of the licensing agreement. Omnimedia's current contract with Kmart, which was re-upped last year for a seven-year term, included a provision that allowed the firm to part company in the event Kmart filed Chapter 11.

"We remain optimistic that Kmart, our long-time domestic mass-market merchandising retail partner, will ultimately emerge from this situation as a stronger, more competitive company in keeping with its proud heritage," Stewart said.

Analyst estimates put Kmart's contribution to Omnimedia's revenues at around 13 percent, or roughly $40 million. And while Stewart was quick to state her support for the reorganization effort, she did not rule out the possibility that she might take her business elsewhere.

"While a bankruptcy filing brings with it some uncertainty, we currently expect that Kmart will take all possible steps to strengthen our position at Kmart," she said. "If for some reason that doesn't happen, however, we are supremely confident in the strength of our Martha Stewart Everyday brand label and in our ability to realize full value for that brand label in the domestic mass market, whether at Kmart or other mass retail outlets."

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