Lights Out for 284 Kmart Stores

Kmart Corp. said Friday that it would close 284 stores, including 16 in California, retreating in some areas where it has suffered the most blistering competition from Wal-Mart Stores Inc.

Analysts were expecting Kmart to shutter 400 or more stores, and on Friday they predicted a second wave of closures that could claim at least a couple hundred more stores as the nation’s second-largest discount retailer restructures under bankruptcy protection.

Kmart said it would continue to monitor the financial performance of other stores.

“While additional store closings are possible, we do not anticipate another closing of this size in the near term,” spokesman Jack Ferry said.

Retail experts say the stores, which will begin closing in May, probably won’t stay vacant for long. But that didn’t soothe the stores’ loyal customers.

Mary Pearson, a Kmart shopper for half a century, was crushed to learn that the Compton store, her favorite, was on the closure list.

“I don’t know where I’m going to go now,” said Pearson, adding that the store’s wide aisles make it easier for her to shop in her wheelchair. “It makes me want to cry.”

The closures will reduce Kmart’s store count to about 1,800 and means that 22,000 employees--slightly less than 10% of the total work force nationwide--will lose jobs. The Troy, Mich.-based company said that the store closings would cost as much as $1.3 billion and that more than $1 billion in merchandise would be liquidated.

As a percentage, hardest hit will be Southern states, including Mississippi, Louisiana and Arkansas, where Wal-Mart is based. California, which analysts say is one of Kmart’s strongest markets and where the Wal-Mart juggernaut has been slower to advance, will be less affected.

But the closings in California will nonetheless be strongly felt in certain communities, such as Compton, where residents have long complained about the flight of major retailers and the blight they’ve left behind.

Truck driver Dwain Honeywood, 43, was visibly upset when he learned that the Compton store and a Los Angeles store where he also shopped were targeted for closure.

“It just seems like they’re closing the ones in our neighborhood,” said Honeywood, a Compton resident, who bought earrings for his wife at the Kmart at 11507 S. Western Ave. in Los Angeles. He said Kmart seemed to be targeting minority neighborhoods, a charge Kmart denied.

“We’ll probably start going to Wal-Mart,” Honeywood said. “We don’t have a choice.”

Kmart said the company was not targeting any specific population and still was committed to its urban locations. Indeed, some of the company’s better-performing stores are in urban settings, spokesman Ferry said.

“The review was more along the lines of how the stores were performing financially and not trying to vacate any certain population group,” Ferry said. “There’s no way we want to move out of prime real estate in urban locations.”

Competition from Wal-Mart and Target Corp. helped push the struggling Kmart into bankruptcy. Wal-Mart regularly beats Kmart’s prices, while Target offers trendier products, analysts say.

Kmart did not fare as well as its competitors during the last holiday shopping season, then suffered a staggering blow when its only food distributor, Fleming Cos., temporarily stopped shipments after Kmart missed a monthly payment. Within days, Kmart sought Chapter 11 bankruptcy protection.

Kmart said it would ask a U.S. Bankruptcy Court in Chicago to approve the store closures at a hearing March 20.

Although analysts say the closures are necessary if Kmart is to right itself, the company also must correct other problems, such as empty shelves and dirty stores, that were major reasons for Kmart’s long erosion of market share and bankruptcy filing in January.

Another key to Kmart’s success will be holding on to its highest-profile brands. This month, the company asked the Bankruptcy Court’s permission to keep its agreements with these suppliers, including Martha Stewart Living Omnimedia Inc. and Walt Disney Co. Martha Stewart had no comment about the store closure announcement.

The company might be staggering store closures to buy time to attempt to sell store leases to other retailers that may be interested in moving into the vacated properties.

Potential buyers include Kohl’s Corp., Home Depot Inc., Lowe’s Cos. and even Ralphs Grocery Co., experts said.

“All of them are actively looking for blue-light specials,” said Jess Bressi, a bankruptcy attorney in Irvine, referring to the instant discounts Kmart has offered its customers.

The vacancies in the state “provide another great opportunity for another wave of retailers to get into California,” said Ian Brown, senior vice president of the retail division at Grubb & Elllis in Newport Beach. “I don’t think you’ll have to worry about vacant Kmarts.”

Kmart shares closed at $1.29, up 5 cents, on the New York Stock Exchange.