Still Standing

Despite a $176 million loss in September 2002 and a same-store sales drop of 6.9 percent, Kmart Corp. (Troy, Mich.) reaffirmed its commitment to a “fast-track reorganization.” The bankrupt retailer insists it still expects to emerge from Chapter 11 court protection by July 2003.

Under a timeline reviewed last week with its board of directors and the three independent statutory committees in its Chapter 11 reorganization case, Kmart said it expects to complete a comprehensive five-year business plan by the end of 2002. Thereafter, the company said it also intends to file a proposed plan of reorganization and disclosure statement with the U.S. Bankruptcy Court on or before Feb. 24, 2003. The court had extended the period in which Kmart has the exclusive right to file a plan of reorganization through Feb. 28, 2003.

“We have provided a timeline . . . that provides for Kmart to emerge from Chapter 11 protection as early as the first half of 2003,” said chairman and ceo James Adamson. “This timeline is aggressive and will require a lot of hard work in a relatively short period of time, but should be doable. I have always believed that this company should not remain under court protection a day longer than necessary, and Kmart's management team is focused on achieving the operational, financial and legal objectives that must be met for the company to conclude its reorganization. I am as confident as ever that Kmart can emerge from Chapter 11 as a strong and viable competitor with a clearly defined niche in the discount retail sector.”

The nation's seventh-largest retail organization, which filed for bankruptcy protection in January 2002, also said comparable-store sales trend improved significantly in September and the first half of October, aided by successful promotions and store initiatives. Though it reported a 6.9 percent drop in same-store sales in September, this was an improvement of five percentage points from Kmart's comp-store sales in August. Since its Chapter 11 filing, the retailer's monthly comparable-store sales decline has averaged approximately 11 percent.

“We have been very pleased with the company's recent same-store sales trend, which is showing continued improvement in the first half of October,” said president and coo Julian Day. “We believe the improved trend has been aided by the success of our 'Have To Have It'promotions in the Chicago and Detroit markets and by the progress we have made in staying in-stock in high volume and advertised merchandise. Unlike the rest of the chain, sales at stores in these two markets were flat or positive against last year. While we have continued work to do toward achieving positive same-store sales, our experience in Detroit and Chicago suggests we have the ability to impact sales positively and this program is being launched in other major markets.”

In a recent test in the Chicago market, managers at 10 Kmart stores were given more autonomy to order and replenish high-volume merchandise, as well as merchandise featured in the company's weekly sales circulars. Sales at these stores were approximately 10 to 12 percent better than the chain during the test period, with better inventory turns and margins than the company average.

“A key component of our operating plan has been to use promotions aggressively to win back customers we lost after the Chapter 11 filing,” said Day. “At the same time, however, we continue to focus on opportunities to improve gross margin and reduce cost.”