Attention, shoppers: It's Kmart-closing time

Seven of the 27 stores in the bay area, and as many as 1,000 workers, will feel bankruptcy's ax this time.

By SCOTT BARANCIK, Times Staff Writer
© St. Petersburg Times
published January 15, 2003

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When bankrupt Kmart Corp. shuttered hundreds of its U.S. stores in a cost-cutting frenzy last spring, the Tampa Bay area got off easy, losing just one site in New Port Richey.

Not this time.

[Times photo: Kathleen Flynn] Marline Wilkins leads her son Clint, 5, into the Kmart at 19388 Cortez Blvd. in Brooksville, slated for closure. She said she's tried to frequent the store to help out the company.

On Tuesday, the Troy, Mich., retailer announced a second round of closures that will eliminate seven of its 27 stores in the bay area. Those include both of its Hernando County stores, three of nine locations in Hillsborough County, and two of 11 in Pinellas County. Stores in Citrus and Pasco counties were spared. All told, from 700 to 1,050 local employees are expected to lose their jobs within 60 to 90 days.

Nationwide, the chain plans to close 326 of its 1,830 locations, or 18 percent, with as many as 37,000 jobs at risk. In Florida, 25 of 138 stores will close.

"We deeply regret the impact these closings will have on our associates, customers and the communities where the stores are located," Kmart chairman and chief executive James Adamson said in a statement. "But this is a necessary and important step for Kmart."

Executives at Kmart hope this latest round of closures will satisfy creditors and a Chicago bankruptcy judge that it can stanch its massive losses. The chain said it had received an "exit financing" commitment for up to $2-billion from several lenders and hopes to emerge from bankruptcy by April 30.

But many retail experts offered a more grim prognosis. The 104-year-old company, which began as a five-and-dime chain called S.S. Kresge, grew into a discount giant before being hit hard by the Wal-Mart juggernaut and overshadowed by Target's image of affordable chic. Kmart, long the butt of jokes for its reputedly cheap wares, more recently suffered for its association with beleaguered housewares mogul Martha Stewart.

Some analysts said a third round of store closures may be necessary, or that Kmart's emergence from bankruptcy may be short-lived. Others predicted it won't last another year.

"The handwriting's on the wall," said Peter Chapman, president of Bankruptcy Creditors' Service Inc. in Trenton, N.J. Retail consultant Walter Loeb predicted the chain will make it out of bankruptcy reorganization but "long-term, I think they may well end up in Chapter 11 a second time."

Though Kmart employees were warned not to communicate with reporters Tuesday, a few spoke out.

"This Kmart right here is a close-knit family," said Judy Penrod, who was on a smoking break with three other red-vested employees at an Oldsmar store slated to close. "It may not be the best job in the world, but we've got support here. We stick up for each other."

Penrod, 52, said some employees cried Tuesday morning when they heard the news. She said many plan to apply for transfers to other stores.

Kmart's customers also spoke out Tuesday, their reactions ranging from alarm or annoyance to sympathy for a retailing underdog.

The Kmart in South Pasadena, next door to a Kash n' Karry grocery store, is a popular shopping place for local seniors, many of whom come by bus or on foot from nearby retirement homes. The next nearest discount stores are about five miles north.

"I see people come here in wheelchairs," said Richard Floyd, 68. "Where are they supposed to go now?"

The Kmart on Waters Avenue W in Tampa was far less active Tuesday afternoon, with only one of the store's 17 registers in operation. Customer Ramona Jaycox, who owns a deli across the street, said she's loyal to convenience, not the chain. "There's a Wal-Mart down the street. I'm not going all the way to Dale Mabry Highway to shop at Kmart."

In Spring Hill, sexagenarians Carl and Ann Lerche said Kmart can't compete with the selection at the nearby Wal-Mart, which includes a grocery. Construction on a second Wal-Mart close by is well under way. Yet like other residents of the Timber Pines gated community, the couple can get to their soon-to-be-closed Kmart without having to cross busy highway U.S. 19.

One other feature that draws the Lerches to Kmart is what is killing the chain across the country: It is uncrowded.

"Here's my epitaph," joked husband Carl. "'Here lies Carl, who got run over by a woman with a shopping cart at Wal-Mart."'

If nothing else, Kmart customers can look forward to clearance sales. Spokeswoman Michelle Jasukaitis said the company on Jan. 28 will seek the bankruptcy judge's permission for the store closures and inventory sales.

Employees and customers are not the only ones expected to suffer when Kmart closes its local stores. Landlords, whom Kmart already asked recently to take a voluntary rent cut, will lose a tenant, and bankruptcy rules will prohibit them from collecting a broken-lease penalty. Retail tenants at shopping centers and strip malls will lose traffic when anchor Kmart becomes a black hole.

Kmart said it considered each store's profitability outlook, nearby competition and lease situation before deciding whether to close it. At stores like the one in Spring Hill, the growing presence of Wal-Mart was a likely determinant. In South Pasadena, miles from the nearest competitor, the store's small size and the likelihood of finding other tenants to take it over may have played into the calculus.

Kmart had hoped recent holiday sales would provide it a boost, but the results were disappointing. Sales in November at stores open at least a year were down 17.2 percent, to $2.47-billion. December was somewhat better, with Kmart earning its first monthly profit in a year, but same-store sales were down 5.7 percent.

Some analysts predicted this holiday performance might prompt creditors and suppliers to push Kmart into liquidation

"Kmart's fate is in the hands of the vendors," said Kurt Barnard, president of Barnard's Retail Consulting Group in Upper Montclair, N.J. "If the vendors lose faith and lose confidence in Kmart's ability to survive and pay most of what it's owed, vendors will pull the plug."

John Stark, a principal at distressed-debt adviser Water Tower Capital LLC in Chicago, said it is too soon to tell if Kmart will survive. But he said closing unprofitable stores is no guarantee.

"This strategy is reminiscent of the bankruptcy strategies employed by Montgomery Ward and Service Merchandise," he said, "and neither one of those companies is around any more."

-- Times staff writers Mark Albright, Mike Brassfield, Dan DeWitt, Tim Grant, Robert King, Wes Platt and Sasha Talcott contributed to this report, which also used information from Bloomberg News and Times wires. Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

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