Why Did Kmart File Bankruptcy?


A highly popular discount department store chain in the world, Kmart shocked the entire world when it filed for bankruptcy in 2002. The financial problem was very similar to that of Enron, as it almost put an end to one of the most notable retail store chains in history. A company marked with significant highs and lows, it is quite interesting to find out why Did Kmart filed bankruptcy.

Reason Behind the Bankruptcy

Why did Kmart filed bankruptcy? Then-President Mark Schwartz and former Chairman Chuck Conaway caused a financial disaster when they misled company officials and shareholders regarding a financial crisis. Instead of disclosing millions of income and revenues, the two were allegedly spending the money of the company on different kinds of luxuries. According to reports, they spent the money on boats, houses and airplanes.

For these reasons, the company sought Chapter 11 bankruptcy protection. The blame for such crazy downfall for such a huge company was on Conaway, who admitted the fault during a company conference that took place on January 22, 2002. This was the very same date that the company filed for bankruptcy protection. As a result, the stockholders and other company officials forced Conaway to resign. Simultaneously, he was asked to return and pay back all the money and loans that he took from the company.

Important Events and Developments that Took Place After the Bankruptcy

Edward Lampert decided to buy the bonds of Kmart during the time of its bankruptcy. The move was made for ESL Investments. After some time, the discount department store chain slowly emerged out of bankruptcy on May 6, 2003. The newly established Kmart Holdings Corp. started trading at the NASDAQ stock exchange on June 10, 2003. Instead of operating the company for sales, Lampert controlled it in a way that the company would profit.

After emerging from such bankruptcy situation, it was a perfect time for the company to restructure. As part of this all-important move, 34,000 employees were laid off. At the same time, approximately 300 stores closed. All of these significant moves were made after Schwartz and Conaway were dismissed.

In November 2004, Kmart decided to purchase Sears, Roebuck and Co. Under the terms of the merger, the new entity would carry the name Sears Holdings Corp. In addition, both Kmart and Sears can still operate stores under their respective brands.

Today, the company runs in four different successful store concepts. K-Café is a nice restaurant found within stores that sells sandwiches, hot dogs and soft pretzels. Furthermore, it also serves coffee and other kinds of refreshing beverages. The other three store concepts are Kmart Super Center, Big Kmart and simply Kmart.

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