After a judge approved the closure of nearly 300 underperforming Kmart stores last week, the company's trademark "Blue Light Special" for sale merchandise will encompass nearly every store item in a complete liquidation of those stores.
U.S. Bankruptcy Judge Susan Pierson Sonderby approved Kmart's store closing procedures as well as the group of seven companies that will oversee the liquidation, clearing the way for 283 store closures nationwide, including six Virginia stores, and eliminating about 22,000 jobs.
"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," former Kmart Chief Executive Officer Charles C. Conaway said in a statement.
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The sales will bring at least $500 million in cash flow for the company, which filed for Chapter 11 bankruptcy protection Jan. 22, the largest retail filing in industry history.
Money earned from the sale of merchandise in the closing stores, worth an estimated retail value of more than $1.2 billion, will be redirected to Kmart's remaining 1,800 stores.
Charlottesville's Kmart store, located off Route 29, will remain open.
Many business analysts predicted closures after the retailer's announced bankruptcy filing, as unprofitable stores would only continue to impede the company's overall financial growth and future stability.
"Freeing up cash can have two benefits," Commerce Prof. Richard DeMong said. "It may allow a company to invest in more profitable stores, thus increasing profits and profitable cash flow, but it could also be used to reduce debt and therefore interest expenses."
Additional proceeds from merchandise and property sales will pay for the costs of the sale, including employee salaries and advertising costs. Proceeds also will finance bonuses for employees who remain during the liquidation of up to 15 percent of their current base pay.
Although the majority of store items will sell for reduced prices, tobacco products and alcohol will sell at normal prices. Store managers will return guns and ammunition to their suppliers.
"The decision to close these under-performing stores, which do not meet our financial requirements going forward, is an integral part of the company's reorganization effort," said Conaway.
"We are confident that doing so will provide the company with a healthier, more productive store base."
As part of its restructuring efforts, Kmart will continue its licensing agreements and pay outstanding accounts with its five major brands, which account for about $2.7 billion in gross annual sales.
Stores will continue to carry merchandise and may even expand their business relationships among Kmart's major brands, which include Martha Stewart Living Omnimedia Inc., Disney Enterprises Inc. and G.H. Productions Inc., which supplies the store's Jaclyn Smith clothing line, Joe Boxer Licensing LLC and Kathy Ireland World Wide LLC.
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