TROY, Mich. -- In an apparent bid to shore up its food-retailing expertise, Kmart Corp. here last week said Ronald J. Floto, former chairman, president and chief executive officer of Kash n' Karry Food Stores, Tampa, Fla., would become president of its Super Kmart Centers operation and a corporate executive vice president.
The appointment was an element of a restructuring effort that Kmart said involves the closure of 110 of its discount stores by February and the elimination of 6,000 jobs, including 650 management positions, during the next two years.
That effort, which began earlier this year, is designed to enable the company to focus on and improve its core business, said Joseph E. Antonini, chairman, president and chief executive officer.
Floto succeeds Richard S. Miller, executive vice president of
Super Kmart Centers, who will retire at the end of January. Until then, Miller will assist with the transition of responsibilities to Floto and work on strategic projects related to the supercenter operations, the company said. Floto's appointment is effective Oct. 1. Floto, who will report to Antonini, could not be reached for comment last week. He resigned his positions at Kash n' Karry in July following an agreement between bondholders and the company to restructure the chain's $240 million outstanding bond indebtedness. The 100-store chain had closed 17 stores over a 12-month period in an effort to stem mounting losses.
Kmart, which has a total of 2,400 stores, operates about 40 Super Kmart Centers, which combine a full-line supermarket and a conventional discount store under the same roof. Antonini said the company expects to have 70 Super Kmart Centers in operation by the end of the year.
Additionally, Kmart named Virginia G. Rago, formerly divisional vice president of information systems for the fashions division in North Bergen, N.J., to vice president of Kmart store systems development, a new position.
Rago will continue to report to David M. Carlson, senior vice president of corporate information systems.
"Strengthening the core Kmart leadership team is a key to Kmart's long-term success," Antonini said in a statement. "The officer-level appointments [of Floto and Rago] will enrich our top leadership team with new perspectives and proven retail experience."
Ed Comeau, a securities analyst with Lehman Bros., New York, said the hiring of Floto will give Kmart's supercenter operation more food-oriented expertise.
"Ron is a good retail executive, particularly in running a value-oriented, everyday-low-price operation, and it will be good for Kmart to have a seasoned food executive at the top of that operation," Comeau said.
Joseph Ronning, an analyst with Brown Brothers Harriman, New York, expressed a similar opinion. "In an operation like Super Kmart, where something approaching 50% of sales comes from food, it's important to have someone with a knowledge of food retailing to head the division.
"Running food stores is completely different from running a general merchandise business, and Kmart has been somewhat lacking in that regard," he said. "Obviously it has been making good progress, but it's a very positive move to bring in someone who knows the food business."
Antonini said the 110 stores Kmart plans to close in January and February -- including 12 in Indiana and 12 in Texas -- do not meet the company's sales, profit and return-on-investment needs.
"Kmart conducted an assessment of our core discount stores to identify which stores were not meeting our requirements," he said. "Going forward with our renewal, we will insist that our stores fully meet our return-on-investment requirements."
At the time it announced the restructuring program in January, Kmart said it would take an after-tax charge of $850 million in the fourth quarter of this year to cover the costs related to the plan.
Comeau said the store closings had been anticipated, though he expected specific closings to be announced after the Christmas selling season. "That kind of announcement can be demoralizing for employees, but it's an inevitable part of Kmart's efforts to build a more productive operation," he said.
Ronning said he was surprised that Kmart had opted to close so many stores all at once. "I expected them to close the stores gradually over a period of several years, eliminating older, smaller stores as they opened newer, larger units.
"But it's a good move on Kmart's part to improve its returns by getting rid of underperforming assets quickly."
Terms of the restructuring program call for hourly employees to receive various benefits, including career counseling and lump sum payments to remain with Kmart until the actual closing dates, the company said.
The management positions will be eliminated over a period of 18 to 24 months. Those executives will receive severance packages, certain benefits and outplacement counseling, the company added.
