NEW YORK — Credit is tightening up for vendors of Kmart Corp.

Economic concerns both related and unrelated to the bankrupt discounter’s woes have led some factors to limit approvals on their customers’ receivables. Others are forcing suppliers to share in the risks of shipping goods to the retailer.

The picture could get more dire as vendors now have to guess about the retailer’s future in determining whether to put work orders through the pipeline before they’ve gotten the nod from factors on financing.

Some factors were willing to be interviewed for this story on the condition of anonymity, while others, such as Howard Moore at GMAC Commercial Credit, declined comment altogether.

All factors are still checking Kmart and approving orders. However, many factoring firms are either charging premiums to service client accounts that sell to the retailer or requiring different terms, such as shipping within 30 days instead of the customary 60. One midsize firm based here is doing both.

Sources said that last week, at least three firms — reportedly including GMAC — began requiring that clients share in the account risks. Instead of assuming 100 percent of the risk, the three firms are said to be approving between 60 and 70 percent of the receivables, with their clients assuming the balance.

Kmart officials didn’t return calls seeking comment.

Although his firm isn’t among the three changing its terms of doing business with Kmart, Jerry Sandak, executive vice president of Rosenthal & Rosenthal, explained that the sharing of lines is one function of maintaining an overall line of credit for a particular client. The move also helps accommodate a greater amount of activity among clients that sell to the same customer, he pointed out.

Paul Shuldiner, national business development director at Transcap, which provides purchase order and trade financing in the textile and apparel industries, observed: "The decision often involves a combination of the economic outlook, the retailer specifically, and the exposure to that retailer. Firms have to determine their willingness to have a certain amount of exposure, whether that level has reached its peak and the firm’s threshold for pain."

Shuldiner said that, in the Kmart case, many firms are becoming cautious in "taking on their paper."The situation, while unique to Kmart, is not necessarily a result of any direct action by the retailer. Some credit analysts said the current state of the economy, as well as growing concerns over fourth-quarter holiday sales, has many financial institutions evaluating their overall portfolio risks and potential liabilities.

Walter Kaye, president of Merchant Factors Corp., whose refactoring firm is not exposed to any Kmart liabilities, observed that even powerhouse Wal-Mart has seen sales come in at the low end of expectations.

"That is significant to me," he said. "If Wal-Mart is saying that, then you can expect [sales] to lower for everyone. The economic conditions make it exceptionally difficult for Kmart. Stores could be in for some rough sledding over the next few months."

Kaye added that if the macroeconomic picture doesn’t improve, and shoppers elect to hunker down and save their hard-earned cash, times will be particularly tough for distressed retailers.

The assessment so far among factors is that Kmart will be fine through at least December because the Troy, Mich.-based discounter still has "lots of cash in the bank." As of Aug. 28, Kmart had $832 million in cash and cash equivalents, according to a filing with the Securities and Exchange Commission.

Looking ahead, financial services executives wonder whether suppliers will feel confident enough in the next few weeks to put spring 2003 work orders into the pipeline. Those decisions will have to be made against a backdrop of uncertainty: Will consumer confidence continue to drop? Will holiday sales be chillier than Frosty the Snowman? Will factors even be checking Kmart at yearend?

Vendors in similar situations risk tying up their cash by assuming manufacturing and processing costs without any guarantees from their financiers regarding the purchase of receivables. They could then end up stuck with inventory if orders get canceled or if the retailer decides to liquidate.

A private label apparel manufacturer here said: "There’s definite concern. We’re luckier than some because even though Kmart is a large account, we also sell to Wal-Mart, although we are finding it hard to get in the door at some of the other retailers. Some in our industry have Kmart as their largest account. If that account is lost, there is no way those firms can make up the business."The division head of a factoring arm in New York told WWD: "Overall, there is a major concern that the losses in the stock market will continue throughout the fourth quarter, along with more layoffs and a dramatic slowdown in consumer shopping patterns. The impact of those factors, and the unknowns such as a war with Iraq, will have a devastating impact on retail sales. There is definite concern about spring 2003."

Alan Melamed, a credit analyst at Alan M. Melamed Associates, said: "We’re telling clients that Kmart is not doing well. While we are not making any recommendations either for or against the retailer, we are telling clients to carefully review the documents filed in the administration of its bankruptcy case."

Kmart officials have said in the past that they hope to exit Chapter 11 by July of next year.

However, after nine months in bankruptcy, the retailer hasn’t shown any ability to stem the flow of red ink. Over the past four quarters, Kmart has lost $3.6 billion, with more than half of its losses occurring since the retailer filed for bankruptcy protection in late January.

In addition, Kmart shares have continued to flounder around the company’s 52-week low of 38 cents, although it moved higher — into the 49-cent range — last week. In the past 18 months, the retailer has seen its market capitalization erode 95 percent. On March 2, 2001, Kmart’s market cap stood at $4.5 billion. As of Wednesday, its market cap was around $231.1 million.

By contrast, Stein Mart, with sales of $1.3 billion last year versus Kmart’s $36.2 billion last year, had a market cap of $252.8 million.

From a per-store perspective, Kmart’s market value is less than that of the goods on its shelves. The retailer’s market cap per store in March of 2001 was $1.8 billion. Last Wednesday, it was about $109,000 per store.

Even some industry observers aren’t hopeful about Kmart’s prospects.

Retail consultant Maggie Gilliam, in her September report on the state of retailing, said on the record what many factors and creditors have told WWD privately of their concerns over Kmart’s future.Gilliam wrote: "The company recently asked for additional [debtor-in-possession] financing, but then rescinded the request after it raised eyebrows about the company’s viability. We frankly have been puzzled by the apparent inaction of Kmart in Chapter 11. Except for the occasional shows of publicity, we have seen no indication of any meaningful strategy or a line-up of people who can get the company moving.

"Moreover, we’ve still seen no rationalization of the real estate, despite an earlier store closure policy related to bottom line [results], irrespective of individual store or market potential," she continued. "Reportedly, more stores are to be closed. According to our observations, Kmart is digging itself into a deeper hole."

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