Kmart plans new firmness with suppliers For a troubled chain, 'this is strong stuff'

February 17, 1996|By BLOOMBERG BUSINESS NEWS

TROY, Mich. -- Kmart Corp., acting more like a thriving retailer than one rumored to be on the brink of bankruptcy, is threatening to curtail business with suppliers who don't want to deal with the company on its terms.

In an internal memorandum, Kmart buyers are ordered to clear with top management all changes in vendor terms. The memo tells buyers to buy less from vendors who are "concerned about their exposure to Kmart." The memo, distributed within the company last week, is from Warren Flick, executive vice president and general merchandising manager of Kmart's U.S. stores.

"It is time for Kmart to move beyond a defensive position," Mr. Flick said in the memo.

Analysts said the memo's tone indicates that the beleaguered retailer believes -- or at least wants to convey that it believes -- that its future is bright enough for it to be firm with vendors, rather than act like a supplicant granting favorable terms to get merchandise.

"This is strong stuff; it signals a change in current," said Kurt Barnard, president of Barnard's Retailing Marketing Report, a forecasting firm in New Jersey. "Kmart is saying to vendors, 'Fish or cut bait, or we'll cut bait for you.' "

Kmart Chief Executive Floyd Hall sent a Feb. 9 letter to Kmart vendors declaring the company's financial difficulties are "predominantly behind it" and outlining its strategy to reach profitability.

"We believe the operating results of the past 12 months represent the bottoming out of Kmart's financial performance," Mr. Hall said in the letter. Mr. Hall said Kmart's return to profitability will be driven by an aggressive sales push this year, with a goal of achieving sales in excess of $200 per square foot in its stores.

Through the first nine months of fiscal 1995, the company lost $151 million, or 34 cents a share, compared with a profit of $151 million in the same period a year ago. Wall Street analysts estimated that for the full year ended Jan. 31, Kmart will post a loss of about $165 million, compared with a year-earlier loss of $296 million.

Kmart's sales per square foot in 1994 were $179, far below those of industry leader Wal-Mart Stores Inc.'s $300 per square foot. Although 1995 figures are not yet available, Standard & Poor's Corp. recently said Kmart's sales are still only about $200 per square foot.

Citing a recent interview he had with Mr. Hall, Mr. Barnard said he expects Kmart to begin showing improved results by the end of this year. "The company has turned the corner," he said. "And it's beginning to operate from a position of strength."

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