Kmart Corp. will close 284 stores in 40 states and Puerto Rico, cutting about 22,000 jobs, as part of its restructuring under Chapter 11 bankruptcy, the company announced Friday.
The stores to be closed include 271 Kmart discount stores and 12 Kmart Supercenters and one Kmart store in Puerto Rico.
"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," Chuck Conaway, chief executive officer, said in a statement.
"While the business rationale supporting this action is compelling, we deeply regret the impact these store closings will have on our associates, our customers and the communities where these stores are located," he said.
The Troy-based discount retailer released the number of closings as it notified affected employees. A release listing the exact stores that will be closed was to come out by 11 a.m. EST. Landlords are to be notified by Monday. Kmart currently operates more than 2,100 stores nationwide.
The stores will remain open pending bankruptcy court approval. The cuts amount to just under 9 percent of Kmart's work force of about 250,000.
Kmart said it anticipates that the sales generated from store closings and related cost savings will be about $550 million in 2002 and about $45 million annually after that.
An employee at a store in the Detroit suburb of Novi and one in Atlanta confirmed that employees were informed of those stores closing.
"It's just another stupid move," said Norman Beasley, who was shopping Friday at the Novi store. "What am I supposed to do now, go to Wal-Mart? I don't like them."
Linda Muhammad, who was manning the service desk at an Atlanta Kmart slated to close, said she was disappointed.
"It'll be the third (Kmart) store that I've worked at in 10 years," that has closed, Muhammad said.
Muhammad said she wasn't given details on the closing, but said she liked working at Kmart and wanted to stay with the company. Otherwise she said she'll "just get another people-person job."
Kmart filed for Chapter 11 bankruptcy protection on Jan. 22, following lower-than-expected holiday sales, downgrades by several credit rating agencies and a stock dive.
At the time of the filing, Kmart said it would close a number of unprofitable stores. Analysts predicted anywhere from 250-700 stores could close.
Kmart expects to record a charge in the range of $1.1 billion to $1.3 billion, but the closings are expected to improve its earnings before interest, taxes and depreciation by about $31 million a year.
On Wednesday, a bankruptcy court approved $2 billion in fresh financing for Kmart, plus up to $150 million in bonuses for employees who help the company get off the rocks.
The $150 million is a ceiling on bonuses Kmart can pay to vice presidents, various middle managers and pharmacists whom it considers crucial to keeping stores in operation.
Union attorney William Widmer ridiculed the notion that more than 9,000 employees are key to Kmart's longevity. He said those likely to get the money were to blame for the company's woes.
Bankruptcy and lease experts say the store closings will be "devastating" for the smaller stores that share a strip mall with a soon-to-be dark Kmart.
"The other tenants are concerned about viability. ... They depend on Kmart for foot traffic," said Martin Zohn, with Proskauer Rose LLP.
"The center loses most of its attraction to consumers, so even if there is a replacement tenant eventually, there's a long period of a boarded-up store," he said.
For property owners, it means they have to find ways to fill the space, likely with supermarkets, other discount retailers, health clubs or home improvement stores, said Robert Futterman, CEO of Robert K. Futterman and Associates.
"It throws a real wrench in the works," Futterman said.
It also could take Kmart anywhere from six months to two years to liquidate a store, Futterman said, further damaging the other tenants who might have to deal with an anchor store that has a "going out of business sale" sign up.