Kmart to close 326 more stores, three in Md.

More Kmart layoffs, closings

326 stores will be shut

37,000 jobs to be cut

Three outlets in Md. to close

Experts question chance of saving failing company

January 15, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Fighting for survival, discounter Kmart Corp. said yesterday that it would shrink again, closing an additional 326 stores and shedding 37,000 more workers in a bid to emerge from bankruptcy by April 30.

Kmart, the 103-year-old company that pioneered discount retailing and enticed shoppers with its blue-light specials, filed for Chapter 11 bankruptcy protection a year ago because of weak sales, heavy debt and crushing competition.

It has already closed 283 stores.

The latest round of closings, which includes three stores in Maryland and a Texas distribution center, will leave the chain operating 1,500 stores, nearly a third fewer than the 2,114 it operated at its peak. The Troy, Mich.-based retailer will seek approval of the closings Jan. 28 in U.S. Bankruptcy Court in Chicago.

In Maryland, stores in Catonsville on U.S. 40, in Westminster on Englar Road and in Joppatowne on Joppa Farm Road are slated to close, sometime after inventory is sold off through clearance sales, the company said.

Financially ailing retailers often use Chapter 11 as a way to get out of leases at unprofitable stores.

Shoppers at Kmart in Catonsville Plaza yesterday said they will be sad to see the 3-year-old store go. Darlene Forney of West Baltimore, making her second trip to the store that day, said it was her favorite shopping spot.

"It's convenient, and it's our store," she said. "I buy my paper towels here. This was where we always ran."

The store closings in 44 states are part of Kmart's five-year reorganization plan, which Kmart said will strengthen its balance sheet and allow it to re-invent itself.

Kmart said it will carry out the plan and continue running stores with the help of $2 billion in financing - secured by inventory - from GE Commercial Finance, Fleet Retail Finance Inc. and Bank of America N.S.

After Chapter 11

The chain expects to file the plan in bankruptcy court Jan. 24. The company said the emergence from Chapter 11 will leave nothing for shareholders.

"Now that we have accomplished all that we can through the Chapter 11 process, we look forward to putting the considerable costs and distractions of bankruptcy behind us and focusing our full time and attention on revitalizing Kmart," said James B. Adamson, Kmart's chairman and chief executive officer.

Few are questioning Kmart's ability to emerge from bankruptcy by its target date.

But retail experts say it's probably too late for even a leaner Kmart, which has lost its edge to rivals Wal-Mart Stores Inc. and Target Corp., to win back customers and to become a profitable, thriving chain.

"The future of Kmart is disappearance," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based national retail consulting firm. "Kmart hasn't been a viable company for a long time. Instead of rehabilitating themselves, they've diminished even more."

Added Marty Zohn, a bankruptcy expert at Proskauer Rose LLP in Los Angeles, "Any plan of reorganization will simply be a way to salvage some value out of a failing company, so this will not be a straight-out liquidation but is a massive downsizing."

Experts agreed that the rise of Wal-Mart and Target have left no room and no need among consumers for Kmart.

`Waited too long'

"They waited too long to do anything," Davidowitz said. "Coming out of bankruptcy will merely be a technical thing, and they will go right back in. This is a company that is a cadaver. They're just reorganizing the deck chairs on the Titanic."

Kmart's sales at stores open at least a year - a key measure of a retailer's performance - have continued to fall. Yesterday, the chain said same-store sales fell 5.7 percent in the five weeks ended Jan. 1. November same-store sales had decreased 17.2 percent from the corresponding year-ago period.

The retailer also saw its losses grow in its third quarter, recording $383 million in red ink for the 13 weeks ended Oct. 30, compared with a restated loss of $249 million in the third quarter of 2001. Also last month, Kmart said it was restating earnings from the first two quarters of this year and for previous years after problems were discovered as part of the company's review of its accounting practices.

Kmart has been unable to fix basic merchandising problems, retail analysts said yesterday.

"Selling merchandise people generally don't want at prices they don't want to pay in dingy stores ... is a horrible recipe for retailing," said Peter A. Chapman, president of Bankruptcy Creditor's Service Inc. in Trenton, N.J., which publishes a newsletter that tracks billion-dollar restructurings.

"If Kmart does not fundamentally change how it sells stuff, it's on a path to an ultimate wind-down."

No surprise

One shopper at the Catonsville Kmart yesterday said she wasn't surprised by the news of that store's expected closing in 60 days. It employs about 100 people, according to a district manager, some of whom have worked for the retailing giant for decades.

"We knew the chain was having trouble, and this one isn't that crowded," said the shopper, Pat Alt of West Baltimore. "They've cut way back on staff. Half the time you have to go to the self check-out line."

Staff writer TaNoah Morgan contributed to this article.

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