Kmart Cuts Jobs At Headquarters
Retailer cuts prices to speed up liquidation

By Lara Mossa
The Oakland Press
April 1, 2003 

The company will continue to evaluate cost savings - including the future of the headquarters building at the corner of Coolidge and Big Beaver roads - said company executives.

"It is critical for our company as we exit bankruptcy to right size the level of our support group to make sure it's the right size of our store base," said Julian Day, Kmart's chief executive officer, at a press conference Monday.

The latest round of cuts began March 10, when Kmart dismissed two dozen senior executives, about 25 percent of the senior management staff. Positions cut Monday included divisional vice presidents and other mid-level managers and senior officers, said Michael Macik, Kmart's executive vice president of human resources. 

Hourly and salaried workers will be eligible for severance packages, based on their tenure and positions, as well as health care subsidies and outplacement services. The cutbacks will save Kmart $90 million in 2003 and $150 million annually.

The reductions came as no surprise since the bankrupt discount chain is liquidating 316 stores and one distribution center, which will affect 35,000 store workers. Eight stores already have closed and the rest will be shuttered by the end of April, including the Auburn Hills and Southfield stores.

Kmart is on track to emerge from Chapter 11 bankruptcy by the end of April, but the company is still evaluating ways to reduce costs. When asked whether the company would move from its headquarters or Michigan, Day said: "The company will look at every element of its cost base as we go forward. No decision has yet been made."

Kmart's work force could easily fit into a 200,000 square foot facility, rather than the 1 million square foot building it occupies now, said Jeff Bell, senior vice president of the office services group Grubman-Ellis Co. in Southfield. The average big-box retail store has about 100,000 square feet of space.

"I have not heard anything official, as it relates to that property (being for sale), but clearly, with 2,300 employees, there's too much room there," Bell said. "They clearly do not need that space."

Generally, a work force that size could be accommodated in 100,000 square feet, but considering it's a headquarters, with a need for extra rooms and probably support facilities, an additional 100,000 square feet would be appropriate, he said.

Were Kmart to consider relocation, there are nearby areas, at Interstate-75 and Crooks or at Livernois and Big Beaver that could accommodate the company.

The current headquarters property would likely not be suitable for multi-tenant use because of its open pod-style layout and sprawling nature, Bell said, and most companies would likely not be attracted to it as a headquarters because of its "unique" style.

There would be more value in redeveloping the property into a third phase of the Somerset Collection rather than into office space, he said, depending on the master plans for that area.

And, despite the 80 percent office occupancy rate in the area, as compared to 95 percent to 97 percent just a few years ago, that's still prime property that could fetch a handsome price. Kmart has to figure though, costs to move versus costs to stay, and no one has been privy to that information.

When the restructuring is complete, Kmart will have about 1,500 stores, roughly 170,000 employees, and 2,360 staff members at Troy headquarters. The discounter shrunk from 2,110 stores and 234,000 employees at the beginning of the bankruptcy case in January 2002.

As one of the largest companies in Oakland County, the change is significant, said Dan Hunter, a manager with Oakland County Planning & Economic Development Services.

"That's a sizable reduction of middle management, skilled and talented people," he said of Monday's cutbacks. "That is not good. But looking at the bigger picture, with regard to their plan for being strong and viable, it is obviously something they feel they need to do. Hopefully, it will assist them in emerging from bankruptcy."

The downsizing makes sense because Kmart is moving some of its buying decisions to the store level, said Patrick O'Keefe, president of O'Keefe & Associates, a turnaround consulting firm in Bloomfield Hills.

"You have to question whether or not the new management team is trying to dress up the company in the short run for acquisition by getting rid of so much overhead," he said.

If Kmart's Plan of Reorganization is approved, the company will have new investors including two major shareholders, Third Avenue Value Fund and ESL Investments, which will own slightly more than 50 percent of Kmart's common stock.

Day said Edward S. Lampert, chairman and CEO of ESL Investments, shares his vision for the company.

"The key is to restore this company to a level of operating profitability that is consistent with the sales base," Day said. "Nobody is looking for the magic answer. ... It is very clear he is committed to the future and survival of this business."

In court papers filed Friday, Kmart named new members of the company's Board of Directors. Day will represent Kmart. The plan investors selected Edward S. Lampert, William C. Crowley, Steven T. Mnuchin and Thomas J. Tisch; The unsecured creditors selected E. David Coolidge III and William S. Foss. The financial institutions selected Ann N. Reese and Brandon Stranzl.

(Business Editor Gary Gosselin contributed to this report.)