Kmart will close 7 stores in Md.

Chapter 11 action means eliminating 22,000 jobs in nation

Not enough, analysts say

March 09, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

In a move that experts say doesn't cut deep enough, Kmart Corp. said yesterday that it will eliminate 22,000 jobs and close 284 stores - including seven in Maryland - as part of its restructuring under Chapter 11 bankruptcy.

Of 34 stores in the state, Kmart will close those in Aberdeen, Columbia, Forestville, La Vale, Laurel, Randallstown and Waldorf. A company spokeswoman said a total of 559 jobs will be cut.

Nationwide, the country's third-largest discount retailer will close 271 Kmart discount stores and 12 Kmart Supercenters in 40 states and one store in Puerto Rico. Job cuts amount to roughly 9 percent of the Troy, Mich., company's 250,000 employees.

Once a pioneer in the discount retail industry, the 103-year-old company recently suffered through a poor holiday sales season, tumbling stock price and several credit downgrades before becoming the largest retailer ever to seek bankruptcy protection.

The company filed Jan. 22.

"The decision to close these under-performing stores, which do not meet our financial requirements going forward, is an integral part of the company's reorganization effort," Charles C. Conaway, Kmart's chief executive officer, said in a statement.

"We are confident that doing so will provide the company with a healthier, more productive store base."

Analysts and retail industry experts expected the store closings, but some said the chain, with more than 2,100 stores, will likely have to close more in the future.

"Every day you're in Chapter 11 hurts your position as a retailer," said Howard Davidowitz, chairman of New York City-based Davidowitz & Associates Inc., a national retail consulting firm.

"In my opinion, approximately six months from now you'll see another announcement from Kmart proposing to close another flight of stores. The trick is to get [the unprofitable stores] all the first time ... and I don't think they did."

Shelly Hale, an analyst who follows Kmart for Banc of America Securities, agreed that the closings were too few. "If this is all the company's going to close, it's going to continue to under-perform. ... They should have closed closer to 500 to 700 stores."

Over the past two decades, the rise of Wal-Mart Stores Inc. and Target Corp., the nation's No. 1 and No. 2 discounters respectively, eroded Kmart's market share. But retail experts say the chain's management shares the blame for squandering the company's once-dominant market position. Now, they say, the company needs to find a new niche.

"The question is: What mission do they define for themselves? Who are they?" Davidowitz said. "That's the job of management. I've been waiting 20 years for management to come along and do that.

"If they can't do that, my expectation is Kmart won't be here in five years because there is no need for Kmart. ... My expectation is for their disappearance."

Kmart's announcement has already hurt another company.

Penske Auto Centers, the largest independent U.S. tire retailer, said yesterday that it will close 63 automotive centers in Kmart stores that were part of the closing announcement.

At Kmart's Columbia store, across Route 175 from a Target Greatland, customers had mixed feelings about the store closings.

"I'm surprised they lasted this long," said Mary Weeks. "Since they built the Target, I don't come here anymore."

Others were saddened.

"It's horrible if they close," said Terri Stinson of Perry Hall, a customer for 30 years. "It's a great store."

Clearance sales will begin at the stores as soon as the U.S. Bankruptcy Court in Chicago approves the closing plan. A hearing is set for March 20, and, if the plan is approved, the stores will close in the subsequent 60 to 90 days.

The cash-strapped company expects sales generated from store closings and related cost savings to be about $550 million this year and $45 million annually after that. The store closings will add to the company's earnings before interest, taxes and depreciation by $31 million. The company expects to record a charge of $1.1 billion to $1.3 billion from the store closings.

The court also approved $2.2 billion in financing Thursday, which Kmart will use to fund store operations as it moves through bankruptcy, the company said.

"Kmart hopes to emerge by next summer; we think that's probably optimistic," said Andrew F. Ebersole, a bond analyst who follows the company for KDP Investment Advisors in Montpelier, Vt. "The company is hoping for 18 months; we're thinking 24 months is more reasonable."

The retailer had many problems that led to its stumble. For one, it didn't go far enough in investing in distribution systems even as Wal-Mart spent billions. Kmart ended up not able to compete with Wal-Mart on price "because their cost structure is too high," said Davidowitz.

Also, customers who couldn't find advertised products in stock went instead to Wal-Mart or Target, despite the allure of Blue Light Specials and the name-brand draw of Martha Stewart products.

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