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SHAREHOLDER

SHAREHOLDER SUBJECT: Maximizing Shareholder Wealth RE: Amy Merrick, “Kmart Is Planning To Close 284 Stores And Cut 22,000 Jobs” Wall Street Journal, March 11, 2002. Amy Merrick, “Kmart Says CEO Conaway Resigned, Adds Post to Plate of Chairman Adamson” Wall Street Journal, March 12, 2002. We all have been reading about the economy has being in a lull, but we are now hearing that it is showing signs of improvement. The retail business took a large hit when the economy rumors began because retail is the first area where people begin to cut back their spending. Shopping goods, specialty goods, and especially luxury goods are no longer in demand. The company that took the brunt of this cutback on spending was Kmart, the second largest retailer in our country behind Wal-Mart. Kmart has been struggling since 2000 when Target began to expand its retail operations. Now Kmart has hit the bottom and is searching for a way back to the top. Last week Kmart made its first move toward its much-needed rebound. Kmart announced that it would be closing 284 stores and cutting 22,000 jobs in order to become more profitable. It is closing stores in forty states. The 284 stores that are closing represent about 13% of its 2,114 locations. Kmart had over expanded its retail business. Kmart had out run its distributors causing lapses in inventory delivery. The inventory problems made its shelves look empty, which, in turn, eventually drove people away from the stores. Now with Kmart closing these stores it will take in between 1.1 and 1.3 billion in connection with the closings. Compacting and concentrating its business will “add $550 million to its cash flow this year and about $45 million annually the following years.” This is good news for the shareholders. The rise in available cash flow should improve the stock price, which the shareholders are desperately trying to achieve. For years Kmart was concerned about its “250 worst performing stores” which is not an unusual number for companies the size of Kmart. But now Kmart is disposing of them, by filing chapter 11 bankruptcy. Bankruptcy allows Kmart to get out of the leases with the stores that are closing, which should dramatically cut down on Kmart’s fixed cost. Lower costs usually show promising signs for the maximization of shareholder wealth. The bankruptcy court also approved a deal that allows Kmart to dispose of over one billion dollars worth of inventory that has been left in the closing stores, yet again another sign of a turn around for Kmart and good news for the shareholders. Bibliography:

Word Count: 434