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The Honolulu Advertiser
Posted on: Tuesday, April 9, 2002

Penske Auto claims partner Kmart to close 700 locations

By Jeff St.Onge
Bloomberg News Service

CHICAGO — Kmart Corp. plans to shutter as many as 700 more stores in addition to the 283 closings it announced last month, said one of the discounter's business partners, Penske Auto Centers LLC, in court papers.

U.S. Bankruptcy Judge Susan Pierson Sonderby issued a temporary restraining order on Saturday blocking Penske from closing more than 500 of its service centers at Kmart locations.

After about four hours of hearings and three hours of closed-door negotiations yesterday, the two sides were unable to reach agreement. Sonderby continued the hearing until today.

Penske closed 63 centers last month at locations Kmart already plans to shut, and expects more of its outlets to be affected as the discount retailer continues to shut down locations.

"Representatives of Penske Corp. were informed by representatives of Kmart Corp. of Kmart's plans to close an additional 700 stores," Penske said in court papers filed yesterday.

Kmart officials denied they planned to close that many stores.

"I don't know where that came from," said Ron Hutchison, Kmart's chief restructuring officer, in remarks to reporters after the hearing. "It was never a number we looked at."

Closing 700 additional stores "was never in our scope," he said.

Penske Auto Centers is 36 percent owned by Kmart and 64 percent owned by a subsidiary of closely held Penske Corp., Penske said in the statement.

Penske also said in a statement over the weekend that Kmart had failed to make a $5 million payment due April 1 as part of its reorganization plans to close 283 of its least-profitable stores.

"We are simply taking action, which we believe we have the right to do" under Penske's agreement with Kmart, Penske attorney David Lynch said during the hearing.

Kmart, with more than 2,100 stores, filed the retail industry's largest-ever Chapter 11 bankruptcy case on Jan. 22 after holiday sales fell and some suppliers halted deliveries because Kmart failed to make payments on time.

Kmart won bankruptcy court approval last month to shut down its least-profitable stores as part of its reorganization.

"We're continuing to evaluate our portfolio of stores, and any additional store closing will be tied to development of a business plan, which is now under way," Kmart spokesman Michael Freitag said.

In Hawai'i, Kmart's seven stores have been spared, although last month the retailer scrapped plans to build what would have been its largest store in the state on 11 acres near Ala Moana Center.