Kmart unveils task force to ax $800M in 2 yrs

Discount Store News, Dec 5, 1994 by Laura Liebeck

TROY, MICH. -- Kmart is turning its cost-cutting plans into action in 1995; the discounter has formed a task force charged with cutting as much as $800 million in corporate expenses over the next two years.

As the newly-appointed task force prepares to implement cost-cutting objectives outlined by chairman Joseph Antonini at the annual meeting in June, several other high-profile Kmart executives are moving to new responsibilities or exiting the company.

George Mrkonic, executive vice president of specialty retailing (a shrinking division as Kmart executes the so-far-successful sale of its specialty chains), was named vice chairman and president of the newly restructured Borders Group (previously the Borders/Walden book stores chain). Mrkonic could not be reached for comment on his new appointment.

As a result of the Borders/Walden restructuring, Walden president and ceo Charles Cumello is leaving the company. The Walden Book headquarters in Connecticut will be relocated. Borders is housed in Ann Arbor, Mich., much closer to Kmart's Troy headquarters.

In a surprise move, senior vp of corporate information systems Dave Carlson has left his post and been renamed a consultant for special projects. Carlson, who joined Kmart in 1985 and is largely credited with bringing the chain into the information age, has been temporarily replaced by executive vp Marvin Rich until a permanent replacement can be found. Carlson did not return phone calls from DSN.

At the same time, Kevin Browett, vp, general merchandise manager, hard lines, left for personal reasons.

Browett is being replaced temporarily by Don Keeble, executive vp of merchandising and operations. Browett replaced Bill Underwood last summer after Underwood was moved to the newly created position of senior vp, vendor and product development.

Antonini and new executive vp Marvin Rich head up the cost-cutting task force. Serving on the committee are: Daryl Jamison, division vp, inventory management; Mike Macik, vp, human resources, U.S. Kmart Stores; Ray Minton, senior director, merchandise planning and analysis; Pete Palmer, vp, labor relations and assistant general counsel; Virginia Rago, vp, Kmart Stores system development; Mike Sanders, divisional vp, DC operations/hard lines; Fred Tinsey, vp, accounting and finance; Shawn Kahle, divisonal vp, corporate and international communications; and and John Valenti, vp, southern region.

The task force was formed to spearhead cost reductions with an eye toward increasing productivity. Antonini promised shareholders in June that Kmart would perform better in 1995 than it did in '93 and '94. The group is charged with streamlining the decision making process, eliminating redundant systems and enhancing shareholder value.

The task force seeks to improve customer perceptions of Kmart. Their actions, or at least their intentions, could help boost Kmart's sagging stock price. Kmart's stock fell to a 52-week low Nov. 22, to $14 per share. Since then, the stock price has remained under $15 per share. Kmart's third quarter 1994 earnings report was dismal.

In response to Kmart's poor third quarter sales report, Ladenburg Thalmann & Co. and Dean Witter Reynolds each lowered their rating on Kmart stock, to "hold" and "swap," respectively. Ladenburg called Kmart's third quarter earnings results "frighteningly poor."

"The retailer is now running 'perilously' close to break-even and even taking into account cash from recent and future asset sales, Kmart's dividend might be jeopardized next year," Ladenburg said in a research report.

Dean Witter voiced concern over a possible divident cut.

Antonini, Rich and the task force are expected to cut deeply into Kmart's operation and overhaul the corporate culture. "We're looking literally at every function and every process with an eye to either eliminate it or improve its efficiency," Rich told the Detroit News last month.

Kmart's board is scheduled to meet Dec. 20. The cuts are slated to roll out in February, the beginning of the company's new fiscal year. The cuts will likely result in more store closings, job elimination and procedural changes. They come on the heels of Kmart's September announcement of 110 store closings, the elimination of 6,000 jobs and management cuts of 10%.

Kmart has raised a substantial amount of money through subsidiary spin-offs in an effort to better concentrate on its core discount store division. Most recently, it raised: $928 million from the sale of its Coles Myer holdings; $642 million from the spin-off of OfficeMax shares to the public; and $167 million from the spin-off of The Sports Authority.