Changes in store for Kmart after Ch. 11
Heath E. Combs -- Home Textiles Today, January 28, 2002
Now that it has filed Chapter 11 after weeks of speculation, Kmart still has a lot of work ahead as it hopes to exit bankruptcy next year.
All 2,114 stores remained opened for business last week, though changes will soon be apparent as the discounter, the largest retailer ever to file for bankruptcy, looks to implement initiatives to pull itself upright.
Already the board has brought in James Adamson as chairman, and last week it brought aboard Ronald Hutchison as chief restructuring officer. Both men have experience with companies undergoing reorganization.
It also secured $2 billion financing facility from Credit Suisse First Boston, Fleet Retail Finance, General Electric Capital Corp. and JPMorgan Chase Bank, all of which will act in various capacities, including as collateral monitors, documentation agents and syndication agents.
In a statement last week, Kmart outlined its immediate objectives, including enhancing itself as the retailer where Mom shops, enticing her with exclusive brands, optimizing its supply chain, investing in critical technology and evaluating the performance of every store by the end of the first quarter and closing under-performing stores.
It also looks to save an additional $600 million in other cost-cutting measures. It wants to immediately terminate the leases of about 350 stores that were either closed previously by Kmart or are being leased by other tenants at rents below Kmart's obligation, subject to the bankruptcy court, which would result in $250 million in immediate annual savings. Kmart is also looking to reduce annual expenses by an additional $350 million through reengineering the organization as well as staff reductions, office consolidations and other actions.
"We are committed and determined to complete our reorganization as quickly and as smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future," said Charles Conaway, ceo.
Kmart ended the week by announcing that it had received an anonymous letter, purportedly from Kmart employees, that expressed concern over unspecified accounting matters. The letter was addressed to the Securities & Exchange Commission, the company's auditors and the board of directors, and was referred to the audit committee of the board, which quickly engaged outside counsel and accounting consultants to conduct an independent investigation. Kmart intends to cooperate fully with the SEC, it said, which it contacted on receipt of the letter. The SEC has subsequently authorized a private investigation.
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