KMART IN TALKS FOR HEADQUARTERS MOVE 2004-10-04 (2)

VICKI M. YOUNG

NEW YORK -- Kmart Holding Corp. might be making a move closer to the New York metropolitan area, according to sources.

Executives at the retailer have been talking with government officials about whether it will leave its Big Beaver Road headquarters in Troy, Mich., as well as options within the state for relocation.

Speculation during summer of 2003 had the retailer contemplating moving its operations to a distribution center in northern New Jersey. Since then, Kmart has agreed to sell several sites to Home Depot and Sears.

Kmart officials declined to comment.

Kmart's current headquarters facility is located on Kmart-owned land described as "prime real estate," said a source in the Detroit metro area, who also revealed there were two developers interested in the property. At 1 million square feet, the existing buildings, which once housed 5,000 employees, would likely be razed by a new owner. About 2,000 employees are working there now.

According to a story in the Detroit Free Press, state and local officials have shown Kmart management sites in Michigan suitable for a downsized corporate office.

However, sources familiar with the company's mind-set said they believe Kmart is looking out of state, possibly to areas closer to Chairman Edward Lampert's hometown in Connecticut. Lampert is founder of ESL Investments, the hedge fund firm that bailed Kmart out of bankruptcy last year.

The distribution center in New Jersey, sources said, would also afford certain executives a shorter commute to Kmart's showroom and offices in Manhattan.

Ed Nakfoor, retail consultant in Detroit, observed, "I'm definitely of the school that it's not a matter of if, but when will Kmart vacate its head office here. The headquarters' staff continues to be whittled down, and I anticipate another round of layoffs at corporate."

The proceeds from a sale of the headquarters are expected to bolster Kmart's balance sheet. Yet the consultant doesn't feel Kmart is making investments to improve its stores. "I think it's very telling that little, if any, money has been allocated to cleaning up the stores," Nakfoor said.