Jan. 22, 2002 – Kmart shoppers in the Virgin Islands should not be unduly concerned about the corporate giant's announcement that it has declared bankruptcy, the manager of the Tutu Park Mall store said Tuesday afternoon.
"We're going to stay in the Virgin Islands," manager George Newton said. He said the Caribbean has always been a good market for Kmart.
The nation's third-largest retailer is the territory's largest. Kmart has four outlets in the Virgin Islands — at Tutu Park and in Lockhart Gardens on St. Thomas and in the Sunny Isle Shopping Center and at the Sunshine Mall on St. Croix.
The corporation's other Caribbean presence consists of about two dozen Kmart and Kmart Supercenter outlets in Puerto Rico.
Kmart Corp. announced on Tuesday that it had filed in Chicago for Chapter 11 bankruptcy protection, which will allow it to continue to operate while it reorganizes.
According to a corporate news release, all 2,144 Kmart retail outlets will continue to operate as usual. However, the company said it would review its decisions by the end of the first quarter, in April, and would then close under-performing or unprofitable stores in order to increase cash flow and return on invested capital.
Newton said the bankruptcy was a bitter pill to swallow but necessary in order to get the company back on its feet. "It helps us go forward with the issues we need to face," he said.
The bankruptcy filing, which had been widely anticipated in recent days, came on the heels of a slow holiday season and in the face of strong competition from the nation's largest retailers, Wal-mart and Target, neither of which operates in the Virgin Islands.
In the news release, Kmart cited a rapid decline in its liquidity resulting from lower-than-expected sales and earnings in the fourth quarter, the evaporation of the surety bond market and an erosion of supplier confidence. Surety bonds are insurance policies that pay out when a company fails to meet a financial obligation.
Kmart announced that it expects to be out of bankruptcy by 2003. With that goal in mind, the company secured $2 million "debtor in possession" financing, which allows it to operate while refinancing. The money will be used to supplement the company's existing cash flow during reorganization.
"We are determined to complete our refinancing as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future," the company's chief executive officer, Charles C. Conaway, said.
Kmart, the nation's No. 2 retailer in sales behind Wal-Mart, had been in talks with its lenders to seek additional financing and is expected to report a loss for Fiscal Year 2001.
The Reuters news service reported that on Monday, Fleming Cos. Inc., a major U.S. distributor of grocery products and Kmart's sole grocery supplier, suspended shipments after Kmart failed to make a regular weekly payment. Scotts Co., a maker of lawn and garden products, also announced it had stopped shipments to all Kmart stores.
Kmart Corp. wants to reduce annual costs by $350 million through job cuts and consolidation, among other things. The company employs about 250,000 people nationwide. Kmart said it also is seeking federal Bankruptcy Court approval to terminate the leases of about 350 stores that it had previously closed or that are currently being leased by other tenants. The company expects to save about $250 million from that move, it said.
No one from Kmart corporate media relations returned a call requesting further comment.