NEW YORK -- The store closures at Kmart have started, but they're far from over.
After much waiting, bankrupt Kmart Corp. on Friday finally disclosed that 284 store sites will go dark, with 22,000 associates losing their jobs and its 2,114 store count being reduced to 1,830.
Kmart said the cost savings for the closures will boost its cash flow by $550 million in 2002 and $45 million a year thereafter. However, to effect those savings, Kmart will have to record a charge of between $1.1 billion and $1.3 billion, a figure that subsequently could be boosted.
The retailer said the closures include 271 Kmart discount stores and 12 Kmart Supercenters in 40 states, as well as 1 Kmart store in Puerto Rico. Of the 40 states, the seven hardest hit were: Texas, 33 units; Illinois, 21; Michigan, 18; California, 16; Florida, 16; Georgia, 14; and Ohio, 10. New York was among the states with nine sites closing, but none were in the city.
The 22,000 associates, or 9 percent of Kmart's workforce, were notified Friday.
Charles C. Conaway, chief executive officer, said in a statement: "The decision to close these underperforming stores, which do not meet our financial requirements going forward, is an integral part of the company's reorganization effort. We are confident that doing so will provide the company with a healthier, more productive store base."
Wall Street analysts have said that Kmart needed to close many more stores in order to have a workable overhead that can insure a certain level of financial stability. In a research note last month, Shelly Hale of Banc of America Securities wrote that she "hoped that, rather than continue to bleed itself to death by closing a couple hundred stores a year, Kmart will close up to 700 underperforming stores and eliminate up to $10 billion in unprofitable sales."
Friday's announcement, financial sources said last week, is just the first in a series of incremental store closures. A few analysts were concerned that Kmart hasn't yet figured out a game plan for its turnaround, and that if it had, Friday's store closure list would have had to have been higher.Walter Loeb of Loeb Associates, a retail consultant, said: "The store count was too few. Kmart took just the worst stores, and it wasn't enough. Some marginal stores didn't make the list and should have. In addition, the retailer still has to get merchandise into the stores. My feeling is that this is a haphazard game plan. Kmart has to come forward with a targeted plan to turn the company around, and we see nothing right now."
Vendors in the marketplace earlier this month were concerned that a high store-closure count would force many from their ranks to close up shop because of the corresponding drop in order volume. After Friday's announcement, the concern shifted to whether the retailer was doing all that it can to insure its promised July 2003 exit from bankruptcy proceedings.
One vendor said: "Kmart also has to do something about its stores to draw in the consumer. Many of them are pig sties."
Kmart last week received final approval from a Chicago bankruptcy court on its $2 billion debtor-in-possession financing facility. Another supplier pointed out that some vendors might not be shipping goods because they failed to file the appropriate paperwork to get the "number code" corresponding to the DIP to guarantee payment for shipment.
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