- The Washington Times - Wednesday, January 23, 2002

Kmart Corp. filed for Chapter 11 bankruptcy protection yesterday, driven by stiff retail competition and a disappointing holiday season.
For now, the retailer that made famous the "blue light" special, will keep its 2,114 stores open.
The company will examine every store's performance by the end of May and close the unprofitable and underperforming locations this year. The nation's third-largest discounter, behind Wal-Mart Stores and Target, hopes to emerge from the biggest retail bankruptcy in history in 2003.
"We are determined to complete our reorganization as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future," Kmart Chief Executive Charles C. Conaway said in a statement.
Chapter 11 allows Kmart to hold off paying bills to creditors and gives it time to reorganize the company and get back on its feet. Companies typically file for Chapter 11 after they have overextended themselves beyond their core business and have piled up debt.
The Troy, Mich., retailer has already secured a $2 billion financing package to help fund its turnaround and continue operating. Last week, Kmart revamped its management, replacing its chairman and president.
"It comes down to having good products on the shelves and getting customers to come in and buy them," said Martin Zohn, a partner at law firm Proskauer Rose LLP.
Analysts say competition from main rivals Target and Wal-Mart is putting the biggest crimp in Kmart's financials.
"At the end of the day, the customers are going to decide where they will shop," said Tom Williams, a spokesman for Wal-Mart, the nation's largest retailer. "Our job is to continue to focus on the communities we're in and keep them shopping at our stores."
Earlier this month, Kmart officials said 2001 results would break even at best because of a poor holiday season the lifeline for most retailers. For the five-week period ended Jan. 2, the close of its fiscal year, net sales were $5.52 billion, down slightly from $5.54 billion a year earlier.
The company's stock, which trades on the New York Stock Exchange, has plummeted 95 percent since reaching a six-month high in August. Yesterday shares closed at 69 cents.
Kmart is asking the bankruptcy court to immediately terminate the leases of about 350 stores that were already closed or are being leased by other tenants.
D.C. officials are still confident the 120,000-square-foot Kmart being built at the Brentwood impound lot will still open later this year.
The developer and contractor have assured the city that the project, between Rhode Island Avenue and Brentwood Road in Northeast, is fully funded, said Cyril Crocker, project manager at the D.C. Office of the Deputy Mayor for Planning and Economic Development.
"This is the kind of store that makes money for them," Mr. Crocker said.
The 102-year-old company, which was originally the S.S. Kresge Co., created the "blue light" special in the 1960s, in an effort to push discounted merchandise that was not advertised in its circulars. To stay competitive, Kmart has expanded its merchandise to include groceries and added exclusive collections by Martha Stewart and model Kathy Ireland.
"I can't understand why they should be bankrupt," said Sharon Conward, a housewife shopping at the Silver Spring Kmart yesterday. "It's crowded all the time. It's got to be something internal."
Customers whose memories of Kmart and its predecessor stretch to the early 20th century seemed most upset.
"I feel kind of bad because I live across the street and I've been here for 34 years," said 80-year-old Mabel Pottier, as she pushed a cart into the Kmart on Riggs Road in Hyattsville. She remembers when the site of the store was a wooded field.
"It's a nice store and they've got nice people here," she said. She guessed that inventory issues drove the company to bankruptcy.
"The only thing I can think of is they overstocked the shelves all the way to the ceiling," Miss Pottier said. "If you bumped into them, they would fall over."
Postal worker James Jones of Hyattsville speculated that a competitive marketplace overwhelmed Kmart's finances.
"Competition, difference in ownership, I don't know," he said. "There are a lot of stores around."
NASA contractor Gigi Bellucci said she would miss the reasonable prices and convenience if the Greenbelt Kmart were closed.
"I work across the street and it's very convenient to come here to shop," she said.
Employees at the Kmart stores refused to comment.
Kmart listed total assets of $17 billion and $11.3 billion in liabilities in its bankruptcy filing.
Kmart's bankruptcy case is the largest in retail history, surpassing the January 1990 Chapter 11 filing by Federated Department Stores Inc. with assets of $11.4 billion. Federated, which owns Macy's and Bloomingdale's, emerged two years later.
Other retailers have not been as lucky. Locally owned Hechinger's filed for Chapter 11 bankruptcy in June 1999, but started closing its doors just three months later. Montgomery Ward filed for bankruptcy for a second time in December 2000 and decided to close its 252 stores nationwide. It first filed for bankruptcy in 1997.
Kmart has about 240,000 employees, who will continue to be paid and get their full benefits while the company is in Chapter 11, Kmart said.
Pension and savings plans were maintained independently of the company and were protected under federal law, it said. About 3.5 percent of total pension-plan savings were in the form of Kmart shares bought by staff.

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