They’re holding us accountable to hold their inventory at correct levels.”
To be sure, a bankruptcy filing would be very costly for the retailer in terms of higher borrowing costs for DIP financing, and related costs for store closures and severance packages. According to Kmart’s annual report for 2000, it had 252,000 employees.
“The way the bonds are trading, the company’s public paper is essentially at bankruptcy,” observed Isaac Lagnado, president of Tactical Retail Solutions. “What is important is to solidify the bank line, within a week or so. That’s absolutely first. The second thing is to make the right expense moves that will result in some non-bank financing being available in the short term, like commercial paper and longer term types of debt. One expense lever is store closings,” which Lagnado added could start happening within 30 to 45 days. “A lot of stores are still not cash-flow positive, and are not productive enough compared to Wal-Mart,” he noted.