KMART TO CUT CAPITAL COSTS, SHUT DOWN 196 UNITS IN ’95

Byline: Mark Tosh, with contributions from Thomas J. Ryan Fairchild News Service

NEW YORK — With “critical execution problems” yet to be solved, Kmart Corp. plans to slash capital expenditures on discount stores by half and step up closings in 1995, according to chain’s 1994 annual report, released Tuesday.The report provides the latest word on the struggling discounter’s restructuring plans and objectives. For example, the report noted Kmart will close 196 stores this year, almost one-third more than the 150 closings projected in a restructuring plan approved in January 1994. Kmart said 91 of those stores already have closed.Additionally, Kmart said capital expenditures for all Kmart-owned operations in the U.S. will drop to about $500 million this year from $800 million in 1994. The discounter did not break out its capital expenditures by division but said the budget has “been cut in half” for its 2,316-store discount business.Separately, the proxy revealed that Joseph E. Antonini, who resigned as president and chief executive officer last month, will receive monthly severance payments over the next two years equal to his monthly base salary. He received $923,000 salary in 1994, up from $893,000 in 1993.The severance plan also calls for a monthly payment of 1/12 of his annual “on-plan bonus” targeted for the year. He has not received a bonus since a $604,901 payout in 1992.In addition, Antonini will get retirement income of $527,064 per year for the rest of his life from Kmart after the two-year severance period ends.In the 56-page annual report, senior management paints a bleak picture of Kmart’s core discount store business.“We learned that Kmart is behind in important comparisons such as sales per square foot, operating expenses as a percent of sales and net operating margin as a percent of sales,” according to a statement from the senior management team.Management’s priorities this year include correcting “fundamental” operational problems such as being out of stock and inadequate systems. The firm will also try to increase sales, continue to cut costs and give more attention to its core discount business.The plan to increase sales focuses on adding “more complete assortments of high-frequency basic items,” more national brands and the creation of “national event-driven seasonal promotions,” Kmart said.Kmart also said it will achieve cost reductions of $475 million this year, which includes the sale of Kmart aircraft. A task force overseeing the cost-cutting has identified 71 specific actions and hopes to find total savings of $800 million by 1996.Kmart said that of the 196 stores being closed this year, 71 are in markets that will be vacated by Kmart, 72 are in markets where Kmart will narrow its presence, and 53 stores will be relocations. New units in 1995 include 43 discount stores, and 22 Super Kmart Centers, which “has strong potential for profitable growth and attracts a younger and more affluent family shopper than traditional Kmart stores.”Kmart also said it will slow down to 30 expansions and 60 remodels this year from the originally planned 84 expansions and 100 refurbishments.The decrease was attributed to “ongoing refinements of store layouts and merchandise assortments.”