NEW YORK – Discount chain Kmart Corp. on Friday said it will close 284 of its 2,114 stores and cut 22,000 jobs as part of its restructuring under Chapter 11 bankruptcy, resulting in a charge of $1.1 to $1.3 billion.
The stores to be closed include 271 Kmart discount stores and 12 Kmart Supercenters and one Kmart store in Puerto Rico.
The closings represent about 13 percent of Kmart stores. The cuts amount to just under 9 percent of Kmart's work force of about 250,000. Analysts had predicted anywhere from 250-700 stores could close.
"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.
Kmart filed for voluntary Chapter 11 bankruptcy protection on Jan. 22 after intense competition from rivals Wal-Mart Stores Inc. and Target Corp. and weak holiday sales left the retailer strapped for cash.
At the time of its bankruptcy filing, Kmart said it would close underperforming stores. The company aims to emerge from bankruptcy in July 2003.
At least one employee at a store in the Detroit suburb of Novi confirmed that employees were informed of that store's 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."
The closings are expected to improve Kmart's earnings before interest, taxes and depreciation by about $31 million a year. As a result, Kmart expects to record a charge in the range of $1.1 billion to $1.3 billion.
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.
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.
Reuters and the Associated Press contributed to this report.