CHICAGO – Kmart Corp.'s plight worsened Monday when its sole grocery supplier suspended shipments to the troubled retailer after Kmart failed to make a regular weekly payment for deliveries of food and other goods.
Fleming Cos., a major U.S. distributor of grocery products, said it stopped shipments to all Kmart stores except for certain perishable food products that were already in transit.
Scotts Co., a maker of lawn and garden products, also said it had halted shipments to Kmart, the No. 2 U.S. discount retailer behind Wal-Mart Stores Inc.
Kmart's liquidity is being scrutinized by Wall Street amid concern that the company may be forced to file for bankruptcy. Kmart shares fell to 30-year lows last week but rose slightly to close at $1.74 on Friday on the New York Stock Exchange.
Kenneth Harris, a partner with food and retail consulting firm Cannondale Associates, said of Fleming's decision, "It's a big deal. It just turns up the heat on the whole process."
He added, "Fleming is much closer to the pulse of the business and they're also getting paid a lot more regularly than manufacturers. Fleming is going to be much more in tune and feel the pain of not getting paid a lot faster."
Fleming said it has submitted to Kmart a notice of failure to pay and is seeking to reclaim $78 million worth of goods already shipped but not paid for.
"Fleming is working with Kmart as they navigate through their current financial problems and we intend to resume delivery of food and other consumable products to Kmart upon receiving satisfactory assurance of Kmart's performance," Neal Rider, Fleming's executive vice-president and chief financial officer, said in a statement. "We are also taking the appropriate steps to protect Fleming's interest."
Kmart Chief Executive Charles Conaway said in a statement, "We look forward to resuming our critical business relationship with Fleming once we work through these financial issues and are able to provide Fleming with adequate assurance of payment."
A representative for Troy, Michigan-based Kmart could not provide further details.
SUPPLIERS TAKE TOUGH LINE
Dallas-based Fleming, which did not update its earnings guidance, said its seven-day payment terms for shipments to Kmart, along with its reclamation claim, put the company in a strong position to recover its receivables.
It also said it was working on a so-called "restart plan" that will eventually allow Kmart stores to be replenished.
Fleming began a 10-year exclusive-supplier relationship with Kmart in July, winning a big piece of business from its main U.S. competitor, Minneapolis-based Supervalu Inc .
Jim King, a spokesman for Marysville, Ohio-based Scotts, on Monday told Reuters that his company had ceased shipments to Kmart. He said January shipments are typically low for garden products, a seasonal business that picks up again in March.
"We have right now made the decision not to make any shipments to Kmart," King said. "However, this is not the period of the year in which it would be an extremely busy shipping season for us."
Kmart shares tumbled last week after the retailer disclosed that it was in talks with its lenders about additional financing and was reviewing its liquidity position.