Lawrence’s Kmart distribution center still has hope, thanks to latest twist in bankruptcy case

photo by: Chris Conde

Lawrence's Kmart distribution center is pictured Sept. 26, 2018.

Kmart — and its approximately 300 local jobs — is still kicking.

Sears Holdings Corp., which is the parent company for both Sears and Kmart, agreed Tuesday to consider a revised takeover bid that would stave off a complete shutdown of Sears and Kmart stores across the country. The mega bankruptcy case has major Lawrence implications because Kmart operates a Lawrence distribution center that historically has employed about 300 people and paid more than half a million dollars a year in local property taxes.

The idea that Sears and Kmart could continue operating is a stark reversal from the vibe on Tuesday morning. A pair of national media outlets reported that sources close the company said the Sears board of directors would reject the takeover bid, and ask a bankruptcy judge for permission to liquidate all of the company’s assets. In that scenario, the company was expected to hold “fire sales” for all of its remaining inventory.

A liquidation also would mean the eventual closure of the Lawrence distribution center, which is located near Lawrence’s McDonald Drive interchange on the Kansas Turnpike. A closing of the distribution center would create the prospect of the largest industrial building in Douglas County sitting vacant for an extended period of time.

As we reported last week, the board of directors for Sears Holdings Corp. was supposed to make a decision on Friday whether to accept a $4.4 billion bid from hedge fund manager and former Sears CEO Eddie Lampert. Terms of the bid call for Sears and Kmart to remain open, although with a smaller number of stores.

Sears officials on Friday, however, did not make any announcements about Lampert’s bid or the future of the company, but Wall Street sources said Sears was poised to reject the deal.

But at a bankruptcy hearing in the Southern District of New York on Tuesday, an attorney for Sears said Lampert had made a revised bid, and that Sears had agreed to consider it, according to multiple national media reports. The attorney did not provide details of the revised offer. The bankruptcy court is expected to consider Lampert’s new offer at a Jan. 14 hearing. The court, ultimately, must approve any sale or takeover offer. At the Jan. 14 hearing, the court could decide Lampert’s new offer is insufficient and order a liquidation of the company.

The situation is definitely fluid, and likely is creating questions for employees at the Kmart distribution center. Stephen Ware, a professor at the University of Kansas School of Law and an expert in bankruptcy law, said it is hard to say with any confidence what employees may be facing in the coming weeks.

“I wouldn’t use the word ‘confident’ about how anybody should feel in a bankruptcy,” Ware said. “I do think employees in a company facing liquidation are wise to look at their options.”

Retirees of the company also will want to watch the bankruptcy proceedings. Both Sears and Kmart previously offered traditional pension plans that promise to pay retirees for the remainder of their lives. Kmart stopped offering its pension plan to new employees in 1996 and Sears in 2005, but the combined pension plan still provides payments to about 90,000 retirees, according to an October article by the Chicago Tribune.

The Tribune reported that a Sears bankruptcy could cause one of the largest pension defaults in U.S. history. But the article also reported that federal officials have assured Sears/Kmart pension holders that the federal Pension Benefit Guaranty Corporation would step in and cover pension payments that couldn’t be covered by the company. The article reported that the Sears pension fund has been underfunded by about $1 billion for a number of years.

Ware also said that pension holders of the company would be considered a special class of creditors in any bankruptcy proceeding, which means their claims would receive higher priority for payment than those of traditional creditors.

Less certain is what may happen to the large amount of industrial property that Kmart currently occupies in Lawrence, if the company ultimately is liquidated. The company has about 100 acres of industrially zoned property at the west Lawrence interchange on the Kansas Turnpike. Exactly who owns the property, though, is a little tough to ascertain, but may become important in the near future.

Kmart Distribution Center

According to Douglas County land records, a portion of the property — the part that houses loading docks and staging areas for the numerous tractor-trailers that come to the facility — is owned by Kmart Corp. But the actual building that houses the distribution center has a different set of owners listed. Douglas County records show it is owned by Lawrence Mart Properties Corp. and a pair of trustees by the name of David E. and John F. Anderson.

Ware said figuring out the specifics of the property’s ownership will be important to figuring out its future. Property that is owned by Kmart, Sears Holdings Corp. or one of its subsidiaries would be placed up for auction as part of the liquidation process. But if a third party owns the property and merely was leasing it to Kmart, it wouldn’t be subject to the auction process.

Ware said bankruptcy law does allow a court-appointed bankruptcy trustee, or the liquidating company itself, to reach out to potential buyers and field offers for real estate. At that point, the auction process can become somewhat of a formality.

If the company ultimately liquidates, which is still a big if, the big question in the Lawrence case will be whether anyone is interested in the property, and how quickly Sears Holdings Corp. or the bankruptcy trustee chooses to deal with the property. The Lawrence real estate, after all, is just one piece of hundreds of real estate holdings that would need to be liquidated. How long might it take before action is taken on the Lawrence property?

“Only the insiders in a bankruptcy case know how quickly that will move,” Ware said. “It may sit for a long time, or there may have been people knocking on the door about the property for years.”

The question of who would want the facility probably is the most intriguing. The building is designed to handle large-scale distribution. Assuming the ownership situation gets cleared up, the availability of a move-in-ready distribution center might put Lawrence in the running for future economic development projects. There’s a chance Lawrence could come out ahead, even if Kmart does go out of business, by attracting a new distribution tenant that is financially healthier than Kmart.

But like so many things in bankruptcy, that too is unknown.


Welcome to the new Our old commenting system has been replaced with Facebook Comments. There is no longer a separate username and password login step. If you are already signed into Facebook within your browser, you will be able to comment. If you do not have a Facebook account and do not wish to create one, you will not be able to comment on stories.