Kmart Corp., the discount chain that gave America the Blue Light Special and introduced Martha Stewart home fashions at cut-rate prices, filed for Chapter 11 bankruptcy Tuesday.

        It is the largest retailer in history to seek court protection from creditors, bigger than Cincinnati's Federated Department Stores' Chapter 11 filing 12 years ago, and the sixth-biggest in U.S. history.

INFOGRAPHIC

• Comparing the discount retailers

        The store chain has been around since John F. Kennedy was president, when parent S.S. Kresge opened the first Kmart in 1962 in a Detroit suburb. Most Greater Cincinnatians grew up shopping at Kmart, impressed by the discounts and convenience.

        Then national retailers Target and Wal-Mart, as well as regional discounter Meijer and others simply started beating Kmart at its own game.

        That's the view not just of industry analysts, but local shoppers.

        The company sought protection from creditors a day after it failed to pay its top food supplier, Fleming Cos., $78 million.

        Of its 2,114 stores in all 50 states, 19 are local, including four in Northern Kentucky. It employs about 240,000 people nationally but in recent years slipped behind Wal-Mart among discounters in total sales and, recently, Target has been pulling even with Kmart. In addition, stores such as Meijer continue to gain ground.

        “I grew up at Kmart,” Chris Elliott, 33, of Milford, said as she wheeled her two young children around a Meijer outlet Tuesday in Eastgate. “But the lines are too long, and it's frustrating.”

        She still goes for the famed Blue Light Specials because the store is near her home, but rarely for staple purchases such as groceries and clothing.

        Officials at Kmart remained noncommittal on which — if any — stores would close. But market analysts say some closures, perhaps as many as 700, are inevitable.

        “I don't have a real positive outlook for them in the long run,” Miami University marketing professor Jack Gifford said Tuesday. “The big consultants have suggested big changes, and they've ignored them. They forgot to innovate or change for 40 years.”

        Mr. Gifford eight years ago turned down a consulting job with Kmart.

        “Concepts in stores aren't timely,” he said. “For example, wallscaping. Their stores don't look good, and their merchandise and expense structure aren't good.”

        The company's fortunes took a sharp dive this month after reporting disappointing holiday sales and a bleak earnings outlook while rival Wal-Mart thrived. Debt rating agencies, including Standard & Poor's and Moody's Investors Service, steadily lowered their credit ratings, unsettling suppliers and investors. The company's stock plummeted, and it was removed from S&P's benchmark index of 500 stocks.

        Kmart is the second-largest customer of Cincinnati-based Procter & Gamble Co., a P&G spokesman said Tuesday.

        Procter issued a statement saying the Kmart filing would have no material impact on its sales or earnings.

        About three-quarters of P&G's shipments to Kmart are supplied through third-party distributors. P&G said it was “pleased” with the accounts receivables and that it had been paid up through Tuesday.

        “We have been managing this situation closely for some time now,” said Rob Steele, president of Procter & Gamble North America.

        Kmart officials said the Troy, Mich., company lost $224 million during the third quarter ending Oct. 31.

        “We are determined to complete our reorganization as quickly and smoothly as possible,” chief executive Chuck Conaway said.

        In trading on the New York Stock Exchange, Kmart stock closed at 69 cents, down $1.05. It had traded as high as $13.55 last summer.

        Asked about the likelihood of store closings, market analyst Sheldon Grodsky of South Orange, N.J.-based Grodsky and Associates, said: “100 percent. Well, 99.9 percent. The future isn't that solid. ... Some places in the country will undoubtedly lose a Kmart store in the restructuring, but the world can live on.”

        “They've had subpar profits for many years,” Mr. Grodsky said.

        Kmart used to “own” the discount market in the Tristate. Wal-Mart moved into the area in April 1990; then Target opened its first three local stores in October 1997.

        “I haven't been to (Kmart) for two years,” Brian Smith, 35, of Anderson Township, said outside Meijer. “This is closer and convenient. It'll be a loss — at least it's another option.”

        What remains unclear: how much of an option Kmart will be in the near future.

        In a reorganization, shelves could become more bare as vendors ship more carefully. Lack of merchandise already was a problem at some Kmarts, some shoppers said.

        Other than its most lucrative asset, the Martha Stewart line of home products, Kmart has been squeezed out by competitors who offer a wider range of merchandise. Stewart's Everyday line is Kmart's largest volume-producing label, generating about $1.5 billion in sales in the past year.

        Analysts say that even when prices are comparable, shoppers look for customer service and store amenities.

        “That's what I don't understand. They need to lower their prices,” said Clarence Nelson, 74, of Mount Orab in Brown County. Shopping at a Clermont County competitor of Kmart with his wife, Doris, 69, he said Kmart essentially got beat at their own game: discounting.

        “I do think Meijer and Wal-Mart and Target have them beat,” he said. “But (Kmart) existed for a long time. Maybe it was poor management. Who knows?”

        Analysts say that's part of it, but that simple market forces (supply, demand, consumer wins) were a big factor in Kmart's decline. Miami's Mr. Gifford, however, also said that's why he hopes Kmart re-emerges.

        “I hope the public gets behind their efforts to reorganize because it maintains a competitive marketplace,” he said. “And that's good for the consumer.”

       Enquirer reporter Cliff Peale, Bloomberg News and the Associated Press contributed to this report.
       

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