Jennifer Marks, editor-in-chief -- Home Textiles Today, 9/16/2002 12:00:00 AM
In an uncertain retail world, Kmart has become the elephant in the room — not necessarily causing harm but creating a good deal of anxiety about what it might do in the future.
It's a fair bet that by now many suppliers are working off two sets of budgets for 2003: one for a world that has Kmart in it and one for a world that doesn't. The strategy of preparing dual plans isn't something that should be exclusive to Kmart suppliers, although they clearly have the most at stake in the continued existence of the retailer.
If the worst should happen — if holiday goes poorly and Kmart's bondholders decide to cash out sooner rather than later — there will be a whole lot of home textiles suppliers suddenly looking to replace what collectively amounts to $1.8 billion in retail sales.
And if you think the auction process is ugly now in a world with 1,107 Target stores, imagine what it will be like with a 2,000-unit Target. Life without Kmart would give Target Stores a golden opportunity to ramp up its expansion. It could easily scoop up better storefronts and pump its annual openings from 60 to 70 units a year to a more Wal-Mart-like pace of 100 to 120 units. While Target certainly wouldn't be interested in all 1,800 of Kmart's neighborhoods, a Kmart-free universe would give it more latitude to grow.
In the immediate term, a Kmart liquidation would pretty much skewer 2003 for some notable suppliers and could sound the death knell for a few. Worse, a nationwide liquidation on that scale would put a crimp in at least one quarter's retail sales results for rival retailers — and this during a period that's not looking too promising as it is. Closeouters, on the other hand, would have a field day.
All that said, Kmart remains among the living. It's also worth noting that Kmart has stared into the abyss before and pulled back from the brink.
It is possible that Kmart could be acquired by an international retail group or an international conglomerate with a retail portfolio. As one of my colleagues likes to say, there's always somebody around with a bag wad of cash to spend.
It is also possible that Kmart could fade away slowly, as Service Merchandise did, closing 100 stores or so a year over a period of several years.
And maybe, just maybe, it can turn itself around.
But the current picture isn't pretty — $96 million lost in May, $137 million lost in June, stock trading below $1 and the recent announcement that it is not likely to emerge from bankruptcy protection by July 2003 as planned.
And that's not even taking into account how badly the Justice Department might bloody Martha Stewart's reputation in the coming months.
It couldn't hurt to keep that second budget plan handy.
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