Kmart Store Closing Decision In The Works

Ron Hutchison, restructuring officer for the bankrupt retailer, tells GlobeSt.com there have been a number of store lists that have been created, each based on market value, lease rates, length of lease term, performance or other variables. However, each list is only a part of what will eventually become the master list, after much thought by Kmart's high officials, Hutchison adds.

"There have been lots of lists evaluating our entire store portfolio, we do it weekly," Hutchison says. "It's a constant evaluation. As for which stores will close, we don't know that at this time."

While some reports have put the retail chain's store closure estimate at between 500 to 700 stores, Hutchison says the true number in January will be much lower. In April, Kmart filed for Chapter 11 protection and immediately dropped 283 stores from its nationwide roster. The fate of the retailer and its remaining stores is uncertain, and the chain's stock was recently de-listed.

Kmart units range in size from 40,300 sf to 182,714 sf.

Currently, 1,831 of the company's stores are still open for business.

Management is now negotiating its leases with each property owner, trying to get a lower monthly fee or a shorter lease term. Hutchison says this negotiation will show which stores can remain, and which may have to close.

For example, if a store is a marginal performer, the company may ask that rent be lowered; or if a store has a 20-year lease, the company will ask the lease be set at a much shorter time frame. Each move would increase a store's value, Hutchison says.

"If landlords grant concessions, it makes a store healthier over the long term. It's good for the owner, because the store stays, and it's good for us," he tells GlobeSt.com.

Some owners aren't exactly willing to comply, Hutchison says.

"Some landlords may feel they have alternative uses for the property, or it's just not economical to give concessions, such as if a lender is backing their ownership," Hutchison says.

It's safe to say the company does not intend to pull out of large markets, Hutchison says.

"In vast markets we wouldn't want to close all the stores. However, if there's just four or five stores in a region that aren't performing well, it might be best to close all five and get out," he says.

Of course, because the company is embroiled in court proceedings, Hutchison says he can't make promises than any store will remain open.

He adds the company hopes to file a full disclosure statement to the US Bankruptcy Court in Chicago in February, and to be back in full operation by mid-summer.