New York, NY, Mar. 5--Kmart officials have vowed to emerge from bankruptcy as a culturally changed business, with more financial controls in place, and say they are still on track to make that goal by April 30.
Kmart is no longer operated "by the seat of its pants" but is "grounded in financial reality," said Julian Day, who was named president after the company's bankruptcy last year and added the chief executive title in January.
The retailer, which filed for bankruptcy protection in January 2002, is rebuilding itself around a vastly reduced number of stores and a management focused on honesty, integrity, discipline and leadership, a "four cornerstone approach," Day said during a two hour discussion with a group of reporters at a midtown New York hotel.
The company, reeling from a yearlong federal probe of its former management, is creating a series of best practices to eliminate questionable accounting practices and other improprieties. Managers allegedly inflated revenues through accounting maneuvers.
At the same time, the retailer is trying to differentiate itself from its competitors like Wal-Mart by developing key brands like Joe Boxer, for which the discounter is the exclusive mass merchandise distributor. The line of smiley faced emblazoned underwear and sleepwear, which made its debut last August, generated sales of $300 million last year. Day said that Martha Stewart Everyday, its biggest brand, continues to do well, despite an insider trading scandal that has dogged its namesake.
To lure top talent as it seeks to regain market share, Kmart said it will set aside 10% of the shares it plans to issue when it emerges from bankruptcy to use for compensation.
Meanwhile, to streamline purchasing and make sure Kmart stores are stocked with popular items, only 15 employees are now authorized to give final approval to orders. That number had been 220.
At the same time, management is trying to pump up sales by giving store managers more power to decide what goods are hot and should be stocked in their stores, a move that could help urban locations.
The company's bid to get lean goes beyond shrinking to about 1,500 stores from 2,100 while in bankruptcy. Kmart also has worked to reduce the number of items across the board by 10%, reduce costs and improve inventory turn.
Early results have been positive, Day said, but he would not give specifics on sales and profits. Though February sales were difficult, Day said Kmart was "modestly pleased with the way things are going."
A bankruptcy court hearing to consider final approval of Kmart's reorganization plan is set for April 14 and 15.
Following Kmart's bankruptcy filing, anonymous letters claiming to be from employees prompted Kmart to launch a review of its accounting practices last year. And the government launched its investigation in February 2002.
Last week, prosecutors filed their first criminal indictments in the case. Two former vice presidents were charged with securities fraud for allegedly inflating the retailer's earnings.
Kmart Corp. said, in a court filing, that its internal investigation found evidence supporting possible legal action against former chief executive Charles Conaway for allegedly hiding the retailer's deteriorating finances from the board in the months before the company filed for bankruptcy.
