IT'S A BAD THING FOR KMART, MARTHA, VENDORS.
Shares of the companies that sell to Kmart are off sharply since the beginning of the year. That includes Martha Stewart's media, marketing and merchandising company, which does big business with the Troy, Mich.-based mass merchant.
On Thursday, Kmart's board of directors named James Adamson the company's new non-executive chairman. Former Chairman Chuck Conaway retains his role as chief executive officer. The board also said President Mark Schwartz had resigned.
"The board continues to have confidence in Chuck to lead the company as chief executive officer," Kmart spokesman Jack Ferry told HFN. He would not comment on the reasons behind the resignation of Schwartz.
Kmart and its vendor partners have a big stake in the home area. With more than $6 billion in home furnishings sales, Kmart is the fourth-largest home goods retailer.
About 25 percent of Kmart's home goods sales are through Martha Stewart's program. While Martha is standing by the retailer, she could pack up and find another suitor to peddle her wares if things get worse.
A spokesman for Martha Stewart Living Omnimedia said the company's contract with Kmart has a provision that allows it to terminate the contract if Kmart goes belly up. "However, its enforceability is subject to the bankruptcy code and a judge's discretion," the spokesman said. "We are not looking to this possibility at this time."
Stewart has said in several reports that she's standing by the retailer. It's a good arrangement, the Martha Stewart spokesman said. But not every vendor is as well positioned as Stewart, who would make a killing no matter which retailer she paired up with, analysts said.
Meanwhile, the share prices of vendors who sell to Kmart seemed to get dragged down, too. Dan River's shares have been off 1.8 percent since Jan. 2, while WestPoint Stevens' stock is down more than 24 percent. Shares of Martha Stewart Living Omnimedia are off 4.7 percent.
WestPoint Stevens produces a large bulk of the soft home goods under the Martha Stewart label. Like most of the major vendors, WestPoint Stevens is still shipping goods to Kmart, a spokeswoman said. And it has had no payment disruptions.
Now Kmart is reviewing its liquidity position and is talking with lenders regarding its existing credit line as well as possible supplemental facilities.
At trade shows in Chicago and New York last week, everyone seemed to be speculating on Kmart's future. Would it close 500 stores? Would it file for bankruptcy? Kmart kept quiet, saying only that its board of directors was discussing its financial position. In the meantime, Kmart's stock continued on a downward spiral, dropping nearly 70 percent since the beginning of the year.
"Rumors generally are self-fulfilling prophecies," said analyst Walter Loeb, president of Loeb Associates, New York. "Their stock closed at its lowest since 1967. I hope that the stock price does not jeopardize their standing with vendors."
Loeb then echoed what analysts said from firms such as Banc of America Securities and UBS Warburg: Kmart needs to close a large number of stores, say 400 or more, to survive. Wall Street waited for Kmart to announce closings, or a bankruptcy.
Regarding Kmart's cash position, spokeswoman Julie Fracker said the company has "sufficient funds and available lines of credit to continue to carry out our strategies. We are current with all of our vendor payments."
Still, Kmart's future is still under question. Adamson, the new chairman, is credited with resuscitating the Advantica Restaurant Group, the company that runs Denny's. But broad-lines retailing is different than eggs over easy. Wall Street took the news of the management changes hard, sending shares of Kmart down deeper into new lows.
"Yes, we are concerned," said one home goods vendor. "I'm a small company, and we have a major commitment from Kmart."
At last week's International Housewares Show, Mark Bissell, president and chief executive officer of Bissell Inc., said Kmart is still a powerhouse. "None of us wants to see them go under. All of us have a substantial business there."
Most vendors are supportive of Kmart. And they can't picture a retail landscape without it.
"I can't imagine in my wildest dreams the banks will let them go away," said Roy Kaplan, vice president of sales at WindChaser Products. "It would not be good for the retail environment if it were only Wal-Mart, Target and Sam's."
"I'm not so concerned about Kmart going away," said another home goods supplier. "I think they'll close stores and get reorganized. I'm concerned about the long-term future. Who's going to keep Wal-Mart in check? And what's going to happen to the balance of power?"
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|Title Annotation:||Kmart's financial woes|
|Comment:||IT'S A BAD THING FOR KMART, MARTHA, VENDORS.(Kmart's financial woes)|
|Author:||Zaczkiewicz, Arthur; Beatty, Gerry; report, Barbara Thau contributed to this|
|Publication:||HFN The Weekly Newspaper for the Home Furnishing Network|
|Article Type:||Brief Article|
|Date:||Jan 21, 2002|
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