The Troy-based retailer, which filed for Chapter 11 protection nearly a year ago, currently operates roughly 1,830 stores and has about 228,000 employees.
The store closings, which involve 44 states and Puerto Rico, are subject to court approval. Kmart is scheduled to appear in U.S. Bankruptcy Court in Chicago on Jan. 28.
"We don't want to remain in bankruptcy a day longer than necessary," chief executive James Adamson said in a conference call with reporters.
Tuesday's announcement marks the second round of closings in less than a year. Last March, Kmart closed 283 stores, affecting 22,000 jobs.
The closings also include one distribution center in Texas.
"If handled properly, Kmart could emerge out of bankruptcy a healthy company," Ulysses Yannas, a retail analyst, tells CBS News Correspondent Jim Axelrod.
Management's plan now is to cut payroll, feature exclusive merchandise -- like Martha Stewart Housewares -- and break expensive leases under the protection of Chapter 11. It will be a much smaller company, but the optimists think it will still be formidable.
"It is a company that will have sales of $26-27 billion and that's not small potatoes," says Yannas.
For now though, Kmart is still bleeding, in large part due to the way Wal-mart and Target have chewed up smaller discounters.
"We're all upset. I've been here since 1998. I helped build this store up," said Sharon Knight, an employee at a Detroit Kmart who learned Tuesday that her store is one of those closing. "It's kind of a tremendous loss to me."
Knight, who works behind the jewelry counter, said employees were told at a meeting that the store is planning to close within 60 to 70 days.
Kmart filed for bankruptcy nearly a year ago after a stock dive and disappointing 2001 holiday sales. It needs to close stores while under bankruptcy protection to allow it to get out of leases.
The stores targeted for closure include those with unprofitable leases, underperforming stores and those where competitive pressure is high.
Ron Hutchison, the company's chief restructuring officer, said Kmart's common stock will have no value once Kmart emerges from bankruptcy.
Burt Flickinger, a retail analyst with Reach Marketing, says while store closings are necessary, the company isn't going about it the right way.
Kmart is basing its closures on performance over the last year "and should be looking at what the business will look like the next 12 months," Flickinger says.
Since Kmart filed for bankruptcy on Jan. 22, 2002, it has lost an additional $2 billion and faces declines in same-store sales, sales at stores open at least a year.
Kmart said Tuesday its same-store sales for December were down 5.7 percent from the same period last year.
"As the company contracts, there's still no sign that it can make any money," Flickinger says. "There's so much uncertainty in what Kmart can do to solve its problems."
But Jordan Kaplan, a professor of managerial science at Long Island University, said the store closings may buy some time for Kmart.
"Hopefully, it will stave off a complete liquidation of Kmart — which of course is always a possibility," Kaplan said.
Kmart has struggled to compete with discount rivals Wal-Mart and Target. Some analysts have suggested there isn't room for Kmart unless it finds some way of distinguishing itself and luring customers.
Other troubles plague the company beyond its business plan. Just before its bankruptcy filing, Kmart began receiving anonymous letters, purporting to be from employees, that suggested wrongdoing at the company.
The letters spawned an investigation into the way the company was run under its former management. Congress, the Justice Department and the Securities and Exchange Commission also are investigating Kmart's decline into bankruptcy.