Distribution giant Fleming yesterday [Monday] announced that Kmart did not make its regular weekly payment for delivery of food and other consumable products, and that as a result, Fleming has stopped shipments to all Kmart stores, except for certain perishable food products that were in-transit.

Fleming has also submitted a notice of reclamation to Kmart along with a notice of failure to pay.

Neal Rider, Executive VP and CFO, said: “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.

“We are also taking the appropriate steps to protect Fleming’s interest. Filing the reclamation claim now significantly improves our ability to recover the unpaid inventory, if necessary, or the related receivables.”

As previously stated, Fleming’s business arrangement with Kmart includes a seven-day invoice and payment cycle. The company believes the short payment terms for product shipments to Kmart, plus the reclamation claim, put Fleming in a strong position to recover most of its approximately US$78m in merchandise receivables.

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Kmart’s CEO Charles C. Conaway said: “Our alliance with Fleming has created a more efficient supply chain that has made consumables a strength of our operation. 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.

“Fleming is also working closely with Kmart to develop a restart plan that will enable the replenishment of Kmart’s stores quickly as soon as adequate assurance of performance occurs,” said Rider.

Fleming is not updating its earnings guidance at this time. Additionally, the company has ample capacity under its credit facility to address the non-payment by Kmart.

“Fleming’s short-term and long-term strategies are predicated on diversified growth among a wide variety of customers, including convenience stores, supercenters, self-distributing grocery chains, independent supermarket operators, drug chains, and a variety of alternative retail formats,” said Rider.

“While Kmart is our largest customer in terms of sales volume, our business with other customers continues to grow at a significant rate.” Non-Kmart business accounted for more than 10% sales growth in the third quarter and will continue to grow at a sustained rate of at least 5% per year for the foreseeable future.