DETROIT (AP) Kmart Corp., the discount chain that gave America the BlueLight Special and introduced Martha Stewart fashions at cut-rate prices, filed for Chapter 11 bankruptcy yesterday.

It”s the largest retailer in history to seek court protection from creditors.

The No. 3 discount retailer, which started as a five-and-dime store in Detroit more than a century ago, has struggled against Wal-Mart Stores Inc. and Target Corp., and yesterday saw its stock plunge nearly 60 percent. Kmart shares closed at 70 cents, down $1.04 from $1.74 at Friday”s close.

As part of its reorganization, Troy-based Kmart said it will evaluate the performance of every store and terms of every lease by the end of the first quarter of 2002, and will close unprofitable or underperforming stores.

Some retail analysts said they expected Kmart would have to close about 300 of its more than 2,100 stores, but said they want to see a more detailed plan and a vision of the company”s future.

“At this point the outline of their strategic plan sounds a lot like what they offered up when (CEO Chuck) Conaway took the job,” in May 2000, said analyst Emme Kozloff with Bernstein Sanford. “What I”m looking for are tactical elements.”

Kmart filed for protection because of several factors, including lower-than-expected holiday sales and earnings performance in the fourth quarter, the company said. Fourth quarter earnings are to be released next week. The filing was made in U.S. Bankruptcy Court for the Northern District of Illinois in Chicago.

Kmart said it had secured $2 billion in financing from Credit Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital Corp. and J.P. Morgan Chase Bank. The financing, subject to bankruptcy court approval, will help the company”s cash flow while it restructures.

The company said it has targeted emergence from Chapter 11 in 2003.

“We are determined to complete our reorganization as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future,” Conaway said in a statement.

But while Kmart figures out its business strategy, Kmart customers might find somewhere else to shop, Kozloff said. Filing for bankruptcy means the shelves aren”t going to be fully stocked the next day, something the company already struggles with, she said.

“You”re going to frustrate customers and they”re going to go and it”s going to be hard to get them back,” Kozloff said.

For Kmart”s suppliers, the bankruptcy filing was welcome news.

Kmart on Monday failed to make a regular weekly payment to its primary food distributor. Fleming Cos. cut off shipments to Kmart, saying it was owed $78 million. But yesterday, Fleming said it intends to resume deliveries to Kmart “upon receiving satisfactory assurances from Kmart, via the bankruptcy court.”

“First and foremost, the Kmart filing helps define the path forward in our relationship,” said Mark Hansen, chairman of the board and chief executive officer of Fleming.

Other suppliers have delayed or stopped shipments to Kmart in recent days. But bankruptcy expert Martin Zohn with Proskauer Rose LLP said the filing will restore confidence.

“The Chapter 11 brings order to the process. … It has straightforward rules and for some reason people find that reassuring,” Zohn said. “The one thing Chapter 11 can”t solve is the quality of actual merchandise and sales.”

Kmart has long struggled to compete with lower-priced Wal-Mart and higher quality Target, but took a sharper dive after Jan. 1.

Debt rating agencies, including Standard & Poor”s, lowered their credit ratings for Kmart, and the company was removed from S&ampP”s benchmark index of 500 leading stocks. Moody”s Investors Service, the other major credit ratings service, lowered Kmart”s debt two notches.

Kmart listed its assets in its bankruptcy filing at $16.3 billion, with $10.3 billion in total debts, making it the largest retailer to declare bankruptcy. Previously, Federated Department Stores Inc., with $9.1 billion in assets, was the largest when it filed in January 1990 and emerged two years later.

Analysts for weeks had predicted Kmart would file for bankruptcy. On Thursday, the retailer named turnaround expert James Adamson to replace Conaway as chairman. The company”s president, Mark Schwartz, left the company.

Yesterday, Ronald Hutchison was named executive vice president and chief restructuring officer, a new position. Hutchison was most recently chief financial officer of Advantica Restaurant Group Inc., where he and Adamson were instrumental in the company”s successful reorganization.

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