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Kmart Cuts 660 Jobs at HQ

Kmart Corp. said it was shedding 660 more jobs as it prepares to exit Chapter 11 by the end of April, but other changes might be on the way.

NEW YORK — The hedge-fund investors who will own the majority of Kmart Corp. after its bankruptcy may be prodding the store and its real estate assets in some unconventional directions. This comes as the discounter said Monday it was shedding 660 jobs.

Sources close to the financial team funding Kmart’s exit from bankruptcy proceedings — ESL Investments and Third Avenue Value Fund, who together will own more than 50 percent of reorganized Kmart — told WWD that the two funds were investing in the discounter to take advantage of its real estate holdings.

Those holdings, the sources said, include the ability to incorporate leased departments within each Kmart store, an expected money-making opportunity to increase the value of each location. Leasing opportunities inside each Kmart include fragrance, snack concessions and jewelry.

ESL, headed by Edward Lampert, already owns stakes in AutoZone Inc., an auto parts retailer, and AutoNation Inc., a new and used car retailer. Kmart last April shut down Penske Auto Centers in its stores, and retail sources in Detroit and Chicago said either operation is likely to take up leased space at the former Penske shops at Kmart.

More intriguing, as far as real estate plays go, have been rumblings from Detroit and Chicago speculating on why Lampert has picked up nearly a 9 percent stake in Sears, Roebuck & Co.

According to one source, the ESL hedge fund may be hedging its bets. The source told WWD that there have been discussions of an affiliation linking Sears with Kmart soon after the discounter’s exit from bankruptcy, which Kmart has tapped to occur by April 30. The rumblings have Sears taking over some of Kmart’s store sites to house its Great Indoors concept.

Ed Nakfoor, retail consultant in the Detroit area, observed, “As for merger rumblings with Sears, I think that’s a very likely scenario, although I don’t see it as a merger of ‘equals,’ but rather more of an acquisition of Kmart by Sears.”

According to Nakfoor, another option if Sears’ test of its new stand-alone format to open later this year in Salt Lake City goes well, is to convert certain Kmart locations to the concept. While declining to comment on a possible Sears-Kmart alliance, a Sears spokeswoman confirmed that the prototype is one that Sears is working with in an effort to establish an off-the-mall presence. The first of these is scheduled to open in September in West Jordan, a suburb of Salt Lake City.

Another possibility, one source said, is to turn some Kmart locations into freestanding stores for the Martha Stewart brand or even possibly stores for the Joe Boxer label now carried exclusively at Kmart.

Kmart executives didn’t return phone calls seeking comment.

Lambert doesn’t have a seat on Sears’ board, but does sit on the boards of AutoZone and AutoNation, and is expected to have one on Kmart’s as well upon its exit from Chapter 11. He also has been instrumental in some of the more recent changes at Kmart.

Lampert is a fan of Julian Day, a veteran of Sears top management, and was instrumental in Day’s ascension to the top spot as Kmart’s chief executive officer and president.

While there’s been concern about how an economic downturn could have negative effects on Kmart’s bottom line down the road, Kmart’s new owners don’t appear concerned.

Marty Whitman, chairman of the Third Avenue Value Fund, told WWD in an interview earlier this month, “I don’t think that the economy counts for all that much. I think that Julian Day accounts for more than that much.”

Kmart in the meantime is preparing a new Martha Stewart advertising campaign for June 1 and has recently launched Tea Leaf, its new California-centered marketing push into Asian-American communities.

Of the total job losses at Kmart, 400 will be at headquarters, while 123 individuals located nationally that provided corporate support also will be let go. The balance, 137 positions, were open job listings that will be left unfilled.

Kmart stores and distribution centers are not impacted by the job cuts. Kmart said it expects to save $90 million in fiscal 2003 and $150 million annually thereafter as a result of the head count reductions.