Kmart has to keep its shelves stocked

The loss was caused by the heavy cost of shutting more than 300 stores, and laying off up to 35,000 workers - something Kmart says is vital if it is to return to profit.

The company insisted it saw some small signs of improvement in its trading, but that conditions were extremely tricky at present.

The 2002 loss is not much worse than the loss Kmart returned in 2001, but most recent trading figures show that like-for-like sales are down more than 10%.

Empty shelves

Kmart's key problem is retaining customer confidence at a time of uncertainty over its future.

For part of last year, Kmart's financial troubles hampered delivery of goods from its suppliers, leaving shelves bare from time to time.

"We disappointed a significant number of customers, particularly early last year," said Julian Day, Kmart's chief executive.

"Many of them have not yet resumed shopping at our stores."

Last month, Kmart dumped its grocery supplier, Fleming, and has since begun distributing food to its stores by itself.

Signs of hope

Although Kmart's sales figures seem gruesome, retail analysts said the falls were typical in the curent environment.

Aside from the general fall in consumer confidence, and the slow business inevitable in the post-Christmas season, retailers have been hit by dramatic snowstorms on the eastern seaboard this year.

Optimists say that Kmart's gross margin - currently 21% - is healthy for the sector and more important than net profitability.

As part of its bankruptcy exit plan, Kmart has lined up new investors who have promised to inject more than $300m.