KMART CHIEF HAILS FLEMING DEAL

STEVE RAPHAEL

DETROIT (FNS) -- Of all the accomplishments Chuck Conaway has rung up in his first year at the helm of Kmart Corp., he thinks the February supply deal created with Dallas-based Fleming Cos. may be the most important.

"People will be looking back and really see that as a key milestone," said Conaway, chairman and chief executive officer, at Kmart's annual meeting here last week.

"It will be the best procurement process in the market and we will have the best costs in two to three years."

The arrangement calls for Fleming to provide Kmart substantially all the food and consumable products in all current and future Kmarts and Kmart supercenter stores. The 10-year agreement will produce $4.5 billion worth of business in its first year, which begins July 1.

Conaway said last week that Kmart is sending 51 of its buyers to Dallas to work with Fleming "as a cohesive unit."

Kmart is adopting Fleming's "BestYet" private-label program to add more than 1,600 stockkeeping units to its own with an anticipated savings of $250 million by the third year of the contract, Conaway said.

Conaway said recently that Kmart is considering converting up to 1,000 of its existing discount stores to the supercenter format over the next 10 years.

In addition to the Fleming arrangement, Conaway, who was previously president and chief operating officer of CVS Corp., has moved quickly on multiple initiatives at Kmart, including:

Reinstating the venerable Blue Light Special.

Announcing a two-year, $1.7 billion technology upgrade to improve everything from inventory to customer satisfaction.

Closing 72 underperforming stores.

Launching with Capital One Bank a Master Card already boasting more than 1.7 million accounts.

Significantly reducing inventory and lowering prices on 4,000 popular items.

Outsourcing two distribution centers to Advanced Logistics, based in New Jersey.

The marketplace is responding, Conaway said. Customer satisfaction surveys are up and during Christmas Kmart beat Wal-Mart and Target in same-store sales. As of the middle of last week, Kmart stock was trading at about twice the level of last December.

Conaway cautioned against expecting big sales gains in the second and third quarters as Kmart invests to overhaul and improve the look of an unspecified number of stores, including reconfiguring food departments to accommodate the Fleming contract.