K-Mart Bankruptcy

Kmart bankruptcy

Kmart is an American chain of discount stores headquartered in the United States. The chain purchased Sears in 2005, forming a new corporation under the name Sears Holdings Corporation. The company was founded in 1962 and is the third largest discount store chain in the world, behind Wal-Mart and Target, with stores in the United States, Puerto Rico, the U.S. Virgin Islands, and Guam. As of February 2, 2013, Kmart operated a total of 1,221 Kmart stores in 49 states, Guam, Puerto Rico, and the U.S. Virgin Islands. This store count included 1,196 discount stores, averaging 8,700 s.q.m, and 25 Super Centers, averaging 15,600 s.q.m.

Kmart’s success was based on two main strengths: buying power and brand awareness. First, the size of the company allowed it to buy goods cheaply and in bulk. Or more than a decade, Kmart had over 30 billion in net sales and contracted with over 4,000 merchants.

Like all good things, Kmart’s rise to power eventually came to an end. Kmart’s demise was caused by three main factors. First, Kmart failed to develop a consistent company philosophy. Second, Kmart developed a corporate culture with low levels of management accountability and high levels of compensation. Third, Kmart was simply unable to compete with Wal-Mart. In particular, Wal-Mart bested Kmart with superior supply chain development and management, revenue, and product turnover.

One of Kmart’s central problems was the lack of a coherent corporate philosophy. In the early 2000’s, Kmart was awkwardly positioned between Target, which was known for reasonably priced style, and Wal-Mart, which was known for rock bottom prices. In an attempt to compete on a different plane, Kmart experimented with investments in other companies, such as Office Max, Walden Books, and Sports Authority.15 However, Kmart did not develop these assets, and soon abandoned its investments.

In 1988, Kmart spent $0.231 in overhead for every dollar earned, but Wal-Mart only spent $0.163. Naturally, this allowed Wal-Mart to have lower prices and higher profits. In part because of lower pricing, Wal-Mart was able to outgrow Kmart.2 In 1988, Kmart spent $0.231 in overhead for every dollar earned, but Wal-Mart only spent $0.163. Naturally, this allowed Wal-Mart to have lower prices and higher profits. In part because of lower pricing, Wal-Mart was able to outgrow Kmart.2 Even if Kmart would make the necessary cuts, it still lacked the facilities needed to generate the necessary sales and could not afford to build new stores.

In an effort to restore the fortunes of the company and find a way to compete with Wal-Mart, Kmart hired Charles Conaway as the new CEO. To implement Conaway’s new plan, Kmart began the “blue-light always” campaign.

Conaway decided that Kmart should return to its roots and become the nation’s number one low-priced realtor. To implement this plan, Conaway decided to implement drastic price cuts in an attempt to lure customers from Wal-Mart. This decision had disastrous results.

The company planned to put 50,000 items on sale nationwide. Kmart could not match Wal-Mart on price, could not increase its sales enough to cover its costs, and could not cut its overhead enough break even.

In sum, Kmart was heavily indebted on a three-year loan it received in 1999. When it became obvious that it could not meet its financial obligations, it acquired a new loan for a single year in the hopes of turning the corner and getting back into the black. After Kmart performed poorly in the 4th quarter of 2001, a critical quarter for retailers, it was boxed in. It could not afford to pay its loans, debt obligations, or its creditors. Unable to find a solution to its financial difficulties, Kmart filed a voluntary petition for bankruptcy on Friday, January 22, 2002 in the Northern District of Illinois.

In the months after Kmart filed for bankruptcy, the

...