Mfrs. rooting for Kmart
RTA majors expect to resume shipping
By Carole Sloan -- Furniture Today, January 27, 2002
TROY, Mich. — With furniture sales of more than $700 million in jeopardy as a result of Kmart's filing for Chapter 11 bankruptcy protection this month, industry executives hope the big retailer can survive in a healthier, if smaller, form.
Within the industry, the ready-to-assemble furniture segment and area rug suppliers appear to be taking the hardest hits from the filing, the largest ever in U.S. retailing.
Kmart also is expected to put several hundred big-box retail properties on the block as it looks at which of its 2,114 stores to close. Some, especially in big metro markets, could be attractive for furniture retailing.
Kmart listed debts of $10.35 billion and assets of $16.29 billion. To keep its business going, the company said it had $2 billion in debtor-in-possession financing arranged by JPMorgan Securities and Fleet Securities.
RTA producers are rooting for Kmart. Two flat-pack furniture makers, Dorel and O'Sullivan, said last week that they hoped to remain significant Kmart suppliers. While both said they may have to write off some or all of their Kmart receivables, they still say they and other RTA suppliers will be better off if the company weathers this storm.
"Kmart has been a strong seller of RTA furniture," said Phil Pacey, O'Sullivan's chief financial officer. "They have been a strong partner of ours, and we believe they have a viable and sustainable business model upon their restructuring."
Kmart owes O'Sullivan $1.5 million, Pacey said. "We are expecting to get paid back a portion of that either in cash or new equity or a combination," he said.
Dorel, parent of RTA producer Ameriwood, said it will incur an expense of up to 5 cents per share or $1.4 million related to Kmart.
No industry companies were listed among Kmart's top 50 creditors, a list where the smallest debt was more than $17 million.
More damaging would be the disappearance or drastic downsizing of yet another big retailer of RTA. In little more than a year, Wards and Bradlees have closed, Service Merchandise has decided to liquidate, and other key distribution channels, such as office-products superstores, have retrenched.
Furniture/Today estimated Kmart's furniture sales at $717 million in 2000, mostly at price points of $150 or less. A furniture figure wasn't available for 2001, although the company said its total sales were flat with the previous year.
Kmart has been considered innovative in its treatment of RTA. It was the first to develop a display stand with storage underneath rather than squeezing furniture onto its normal gondola.
Kmart's filing was expected, although it came sooner than some had anticipated. Now that the reorganization is underway, suppliers expect to resume shipping.
"We expect Kmart to once again be a strong partner going forward," said Martin Schwartz, president and CEO of Dorel.
And Chapter 11 may prove beneficial, Pacey added. "It gives Kmart the ability to get their financials cleaned up. And once they've done that, they'll still be the second or third largest discount retailer, and they will be a sizable seller of RTA furniture."
Sales figures for rug producers weren't immediately available. "We are currently a major supplier of rugs to Kmart and we are now assessing the situation and its ramifications," said Kristoff Honeyman, president of Beaulieu rugs
On the real estate front, Kmart closings will add to a long list of properties coming available, said Julius Feinblum, president of Julius M. Feinblum Real Estate, a specialist in furniture retail properties. He said Kmarts in larger cities will be the most appealing stores for furniture uses.
"We don't know if the 500 to 700 stores that we anticipate closing are in the smaller or major markets," Feinblum said.
Prior to the filing, Kmart's Chuck Conaway relinquished the post of chairman to James B. Adamson, though Conaway remains chief executive. Adamson, a Kmart director, is chairman of Advantica Restaurant Group and helped guide in turnarounds at Denny's and Revco.
Mark Schwartz, a former Wal-Mart executive who was brought in as president, left the company.
Kmart also named Ronald B. Hutchison to the new position of executive vice president and chief restructuring officer. Hutchison was chief financial officer of Advantica, where along with Adamson he guided that company's successful reorganization. He and Adamson will advise Kmart on reorganization matters and will work with senior management.
Contributing Editor Tom Edmonds, Rug Editor Lissa Wyman and News Editor Jay McIntosh contributed to this story.
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