On January 22, 2002, Kmart filed for Chapter 11 bankruptcy protection under the leadership of its then-chairman Chuck Conaway and president Mark Schwartz. Conaway, who had had success building up the CVS Corporation, had accepted an offer to take the helm at Kmart along with a loan of some $5 million. In a scandal similar to that involving Enron, Conaway and Schwartz were accused of misleading shareholders and other company officials about the company's financial crisis while making millions and allegedly spending the company's money on airplanes, houses, boats and other luxuries. At a conference for Kmart employees January 22, Conaway accepted "full blame" for the financial disaster. As Kmart emerged from bankruptcy, Conaway was forced to step down and was asked to pay back all the loans he had taken.
While the company was in bankruptcy, Edward Lampert bought Kmart bonds for his hedge fund, ESL Investments. On May 6, 2003, Kmart officially emerged from bankruptcy protection as the Kmart Holdings Corporation and on June 10, 2003, it began trading on the NASDAQ as "KMRT". Lampert took control of the company and began to run it for profit instead of sales.
After dismissing Conaway and Schwartz, Kmart closed more than 300 stores in the United States and laid off around 34,000 workers as part of restructuring the company. Kmart introduced five prototype stores with a new logo, layout, and lime green and gray color scheme, one in White Lake Township, Michigan, a quasi-rural community near Detroit, Michigan, and four in central Illinois: (Peoria, Pekin, Morton and Washington). The new layout was touted as having wider aisles and improved selection and lighting, and the city or town's name was featured under the new Kmart logo at the front entrance. However, Kmart could not afford a full-scale rollout. The lime green prototype was abandoned for the new Kmart "orange" concept that rolled out at nine test stores throughout the United States.
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