K MART what went wrong?

Kmart Corporation the predecessor operating company of Kmart along with 37 of its US subsidiaries filed voluntary petitions for reorganization under on January 2002. It decided to seek bankruptcy reorganization based upon a rapid decline in its liquidity resulting from below plan sales and earnings performance in the fourth quarter of fiscal 2001, the evaporation of the surety bond market, an erosion of supplier confidence intense competition and unsuccessful sale and marketing initiatives as well as the continued recession and capital market volatility in existence at that time.

On May 6, 2003 Kmart and 37 of its US subsidiaries and affiliates emerged from the Chapter reorganization process – 15 months after they filed in the United States Bankruptcy court for the Northern District of Illinois on January 22, 2002. Under the leadership of President who was promoted to Chief Executive Officer in January 2003, the Company achieved several important objectives during its fast track reorganization. The Company’s accomplishments included strengthening its balance sheet and significantly reducing debt; securing $2 billion in exit financing focusing its store portfolio on the most productive locations and terminating leases for closed stores; and developing a more disciplined efficient organization an lowering its overall operating costs.

This case study attempts to analyze what led to the fall of Kmart.

The company today

Sears Holding Corporation is the parent company of Kmart Holding Corporation and Sears, Roebuck and Co. Holdings was formed as a Delaware Corporation in 2004 in connection with the merger of Kmart and Sears (the Merger) . The Merger completed on March 24, 2005 combined two of America’s oldest existing retail entities both with origin dating to the late 1800s.

The company is a broad line retailer with 2,317 full line and 1,150 specialty retail stores in the United States operating through Kmart and Sears and 380 full line and specialty retail stores in Canada, operating through Sears Canada Inc. (Sears Canada) a 70% owned subsidiary.

During fiscal, 2007 it operated three reportable segments: Kmart, Sears Domestic and Sears Canada. As of February 2, 2008 Holdings operated a total of 1,382 Kmart stores across 49 states, Guam, Puerto Rico and the US Virgin islands. The store count included 1,327 discount stores, averaging 92,000 square feet, and 55 Super Centers averaging 165,000 square feet. Most Kmart stores are one floor free standing units that carry a wide assortment of general merchandise including products sold under such well known labels as Jaclyn Smith, Joe Boxer and Martha Stewart Everyday. During fiscal 2005, the company began selling certain proprietary Sears brand products such as Kenmore Craftsman and diehard brand products, and services within certain Kmart stores. At the end of fiscal 2005, approximately 100 Kmart stores were selling an assortment of Sears brand products mainly within home appliances and tools. During the fall of fiscal 2006, it added craftsman tool assortments into Kmart locations nationwide. As of February 2, 2008 approximately 280 Kmart stores were also selling an assortment of major home appliances including Kenmore branded products. There are 1,063 Kmart stores which also operate in store pharmacies. The Super Centers generally operate 24 hours a day and combine a full service grocery along with the general merchandise selection of a discount store. There are also 20 Sears Auto Centers operating in Kmart stores, including 11 which opened in 2007. Sears Auto centers offer a variety of professional automotive repair and maintenance services as well as a full assortment of automotive accessories. Kmart also sells its products through its kmart.com website.

Sebastian S Kresge founded the SS Kresge Corporation the predecessor of Kmart, in 1899 in Detroit, Michigan Kresge’s first retail establishment a five and ten cent store, resembled those operated by Frank Woolworth. The store grew into a chain known as SS Kresge. By 1912 the chain operated 85 stores.

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