Kmart: Fall of a Retailing Giant

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Case Details:

Case Code : BSTR056
Case Length : 16 Pages
Period : 2000 - 2003
Organization : Kmart
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : Retailing

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Think of Kmart as a sick uncle. He has been coughing and wheezing for years. Now he has to have major surgery. We hope he survives the knife. But he will never be what he once was."

- Tom Walsh, Free Press Columnist, January 2002.

"We will emerge as a vital enterprise, focusing on providing value to our customers and our stakeholders."

- Julian Day, Kmart CEO, in April 2003.

Kmart Goes Bust

In January 2002, leading US-based retailer Kmart filed for bankruptcy protection under Chapter 111 after it was unable to meet its payment obligations to suppliers due to severe financial problems.

The company's (the second-largest discount retailer and the third-largest general merchandise retailer in the US) losses amounted to $ 2.45 billion in 2001 (Refer Exhibit I for key financials). Since Kmart was the largest retailer in US history to declare bankruptcy (2114 stores at the time of the declaration), the announcement came as a major shock to industry observers, customers and employees alike. In March 2002, Kmart decided to close 284 stores throughout the US and lay off 9% of its employees (22,000) as part of its reorganization plan. The then Chairman, Chuck Conaway (Conaway) said, "The decision to close these under-performing stores, which do not meet our financial requirements, is an integral part of the company's reorganization effort."

In that year, closures were carried out in 44 US states and Puerto Rico. Over the next one year, the total number of stores closed went up from 284 to 600, while the total number of employees laid off increased from 22,000 to 67,000.

Many senior executives were also laid off - reportedly, around 25%-35% of senior level positions were eliminated. Thousands of vendors dependent on Kmart for selling their merchandise were affected badly. Kmart's share prices reflected the company's uncertain future: while the stock traded at $ 13 in August 2001, it had reached an abysmal low of 11 cents in February 2003 - a loss of $ 6.7 billion in market capitalization in less than two years. In December 2002, the stock was even delisted from the New York Stock Exchange (Refer Exhibit II for Kmart's stock chart). The downfall of the once mighty company soon came to be seen as the result of problems on a number of fronts: strategic, operational, marketing, human resources and business ethics.

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1] Organizations/individuals can file for Chapter 11 bankruptcy under US bankruptcy law to deal with financial problems of a huge magnitude. Those who file for Chapter 11 can propose a payment plan and seek approval of the same from their creditors. Chapter 11 essentially rewrites many of the contracts the debtor has with the creditors, and thereafter both parties act according to the new agreement.


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