Kmart Files for Bankruptcy

Jan. 22 -- Discounter Kmart filed for Chapter 11 today in the largest-ever bankruptcy for a U.S. retailer. The bankruptcy has been widely expected.

The company, which secured $2 billion in debtor-in-possession financing, said it would continue to operate its 2,100 stores while it restructures its business.

Shares in Kmart, which have lost around 85 percent of their value since the beginning of the year, dropped by another 50 percent on the news today.

The move comes as no surprise to industry watchers, who have been speculating in recent weeks that the company's financial woes would prompt it to file for bankruptcy. On Monday, the Troy, Mich.-based retailer's sole supplier of groceries said it delayed or stopped shipments to the beleaguered retailer.

Dallas-based food supplier Fleming said Kmart owes it $78 million in merchandise receivables. Retail analysts tell ABCNEWS many other vendors have been withholding shipments to Kmart, demanding that the company pay cash for the products.

Kmart Chief Executive Charles Conaway said in a statement that he regrets any adverse effect the bankruptcy will have on the retailer's associates, vendors and business partners, but after considering alternatives, bankruptcy protection was the only way to truly resolve the company's problems. Kmart is aiming to emerge from Chapter 11 in 2003.

"I am confident that, with our tremendous resources and dedicated supplier and associate communities, Kmart will emerge from this process as a stronger, more dynamic, more profitable enterprise with a well-defined position in the discount retail sector," said Conaway.

Times of Trouble

While the bankruptcy filing will give the retailer a chance to help itself out of its precarious financial situation, some suspect the move could lead to hundreds of store closings across the country.

Kmart said in a statement that all of its stores are open for business, but that it would continue to pursue "opportunities to reduce annual expenses by an additional $350 million through reengineering the organization, staff reductions, office consolidations and other actions."