Layoffs, shutdowns and bankruptcies have wide-ranging trickle-down effects that extend beyond job loss. Social service agencies are suddenly saddled with supplying short-term financial and job search assistance. There is a drop-off in business at local taverns and restaurants because fewer patrons frequent the establishments. And, there is an enormous negative effect on suppliers.
These are the economic realities of bankruptcy, even if it is for reorganization rather than liquidation.
The unfortunate truth is that few people outside of Wall Street analysts and the company's own corporate directors view bankruptcy protection as a positive move. Outsiders, including vendors and, in many cases, employees, see bankruptcy as the beginning of the end.
Kmart's recent Chapter 11 filing will have an impact far greater than LTV's. With 2,114 stores, 240,000 employees and 4,000 vendors, the opportunities for collateral damage are staggering.
To understand this, look at two key metrics: the number of stores and the number of vendors involved.
That's a lot of commercial real estate and ancillary businesses that will be affected. This despite the $2 billion in financing Kmart has secured and the company's pledge to keep all stores open.
Locally, Developers Diversified Realty Corp. and American Greetings could be among those affected.
American Greetings expects minimal fallout because its contract with the retailer states that American Greetings owns all of its inventory in Kmart stores and can pull its cards out and give them to another retailer to sell. But that doesn't take into account the costs involved with such a massive inventory move, along with securing other outlets to replace Kmart's 2,114 stores.
Developers Diversified says its reliance on the retail chain is minimal -- only between 2 and 3 percent of its rents come from Kmart. But in a market filled with an oversupply of vacant commercial real estate space, having to deal with the uncertainty of which, if any of DDR's properties become Kmart closing casualties doesn't make for a good situation.
No matter how you spin it, there is a serious ripple effect associated with any large-scale bankruptcy filing that goes beyond what you read in the daily news. It's unfortunate, but that's the nature of a free-market economy.