Kmart Files for Bankruptcy

"The potential upside is that in either filing for protection or at least in approaching suppliers and requesting aid from them, it might give Kmart the opportunity to come out of this," said Howard Nemiroff, professor of finance at Long Island University in New York.

"The consumer has no idea for the most part that a company may or may not be in bankruptcy," added Kurt Barnard, president of Barnard's Retail Trend Report in Montclair, N.J. "So bankruptcy wouldn't make any difference whatsoever so long as the store can show that it has the merchandise the customers came in to buy."

But the possibility of store closings did not sit well with some avid Kmart fans today.

"As a mom in financially tough times this has been a store that has offered all sorts of things — home products, cleaning supplies, toys at a discount and it's conveniently located, so it will be a big loss," said Kathleen Anesco, who was shopping at a Kmart in Paramus, N.J.

Staying in the forefront of consumers' minds will be paramount for Kmart, even if it gains the confidence of some suppliers, say analysts. While the recession has made the environment for retailers tough in general, Kmart has had a tougher time because of heated competition from more nimble discount retailers like Wal-Mart and Target.

"There's a huge gap" between Kmart and its competitors, said Standard & Poor's analyst Mary Lou Burde. "I'm sure it can be narrowed, but there will still be a gap."

Price Wars

Chief among Kmart's problems, say industry watchers, are its ability to compete on price, which stems from an inefficient supply-chain infrastructure. While discounter Wal-Mart is renowned for its "just-in-time" inventory system that allows the company to restock products as necessary and keep its costs low, Kmart lacks this efficiency.

"They decided to take Wal-Mart on by way of trying to create what they call price parity," said Barnard. "That is impossible. You can't do that with Wal-Mart. That's like having the state of Luxembourg declare war on the United States."

Conaway has undertaken strategic initiatives to enhance the company's inventory and information systems since he took the helm in May of 2000. But Burde says customers have still been unable to find products on Kmart's shelves.

"Chuck Conaway has achieved some measure of success and started to make improvements in the supply chain, but we're not seeing it in terms of the type of sales they need to get," she said.

Long Road Ahead

Conaway also brought new marketing initiatives and attractive new merchandise to make the stores' offerings more appealing. The retailer signed a long-term merchandising agreement with Martha Stewart earlier this year to carry her Martha Stewart Everyday products until 2008, and also brought back its BlueLight Specials offering savings on brands and products in April.

In a pre-taped statement released by the company today, Conaway expressed confidence over some of Kmart's upcoming developments.

"[Customers] will see a number of new merchandising initiatives that we'll be able to expedite, particularly two new great brands, Joe Boxer, which I'm very excited with, as well as Disney, and they'll see a much more expanded Martha Stewart presence." (Disney is the parent company of ABCNEWS.com.)

But none of Kmart's initiatives thus far seems to have overcome the company's problems with suppliers. Analysts say the company has been slow in paying its vendors since November.

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