Judge Clears Way for Kmart Bankruptcy Sales

Now that a bankruptcy judge has approved Kmart Corp. (KMT)'s request to close more than 280 stores, going-out-of-business sales can begin at the affected stores — and some could start as early as Thursday.

U.S. Bankruptcy Judge Susan Pierson Sonderby on Wednesday approved Kmart's store closing procedures and the group of seven companies that will conduct its liquidation.

Kmart will close 283 stores and eliminate nearly 22,000 jobs. The move was expected after Kmart filed for Chapter 11 bankruptcy protection Jan. 22. The Troy, Mich.-based retailer has said it may close additional stores here and there, but had no plans to announce another wave of closings.

Not everything in the stores will be discounted; guns and ammunition will be returned to their vendors and tobacco and alcohol will be sold at normal prices.

Kmart will use the sale proceeds to pay for the costs of the sale, including paying employees, advertising costs and employee bonuses. Those employees who stay during the liquidation will get bonuses of up to 15 percent of their base pay.

The sales will bring at least $500 million in cash flow for Kmart, money it plans to use to focus on stores that will remain open. The current retail value of the merchandise in the closing stores is estimated at between $1.2 billion and $1.3 billion, Kmart said.

Kmart has said it expects the savings from store closings to be about $45 million annually after this year.

Some experts have said the process could have a negative impact on Kmart landlords, especially where Kmart is the anchor tenant of a strip mall. But many of the objections expected to be heard Wednesday were resolved before Kmart's attorney presented the motion.

The seven companies that will work together to run the liquidation are SB Capital Group LLC, the Nassi Group LLC, Buxbaum Group, Gordon Brothers Retail Partners LLC, Hilco Merchant Resources LLC and Great American Group.

Meanwhile, the sheets, towels and kids' clothing made by Martha Stewart and Disney will stay on Kmart shelves. Sonderby approved Kmart's request to continue its licensing agreements and pay outstanding accounts with its five major brands: Martha Stewart Living Omnimedia Inc.; Disney Enterprises Inc.; G.H. Productions Inc., which supplies its Jaclyn Smith line; Joe Boxer Licensing LLC; and Kathy Ireland World Wide LLC.

Kmart owes $131,735 to Kathy Ireland, $1.1 million to G.H. Productions and $12.3 million to Martha Stewart.

Kmart chairman and chief executive James B. Adamson said the judge's approval was a key victory in the company's restructuring efforts.

"You always look for items of (difference) to give you a competitive edge," Adamson said.

Kmart said in court Wednesday that the five brands account for roughly $2.7 billion annually in gross sales.

Kmart, which filed for bankruptcy after disappointing holiday sales and a stock dive, has struggled to compete with discount competitors Wal-Mart Stores Inc. and Target Corp.

Also Wednesday, the judge approved Kmart's motion to get out of its NASCAR sponsorship agreement with Haas-Carter Motorsports.

At an April 24 hearing, the judge will address employment agreements with Kmart's new executives and separation agreements with former CEO Chuck Conaway.

The Associated Press contributed to this report.