Kmart and Penske Told to End Dispute Over Closing of Auto Centers

By CONSTANCE L. HAYS

Published: April 9, 2002

A federal judge in Chicago yesterday ordered Kmart and Penske Auto Centers, which operated outlets in Kmart stores nationwide, to resolve a dispute involving the shutdown of the centers. No resolution had been reached by last night.

At issue is the abrupt closing on Saturday of all Penske centers after the collapse of talks that appeared to have been seeking a way to close the centers gradually.

Spokesmen for Kmart, which filed for bankruptcy protection earlier this year, said the company was not trying to have the centers reopened, though the company obtained a temporary restraining order on Saturday that Penske appears to have disregarded.

One Kmart spokesman said the chain had been negotiating with Penske about the future of the auto centers, where customers can buy tires and other automotive supplies and also have their cars maintained. Sixty-three of Penske's 566 centers would have been closed under Kmart's plan to shut down 284 stores. But talks broke down on Friday, a Kmart spokesman, Jack Ferry, said. Penske executives then closed all the centers immediately, dismissing employees and papering over windows in some cases, Kmart said.

''It sends a bad message,'' Mr. Ferry said, ''in a store that's open for business, to have a section that had the Penske center closed down.''

Penske contended that it had not been paid $5 million owed by Kmart and said in court documents that its executives had learned that Kmart planned to close an additional 700 stores.

Mr. Ferry denied that such widespread closings were imminent, though he did not rule out closings in addition to the ones already announced. ''We're going to continue to assess the sales, profit and return on investment for each of our stores and their contribution to the company's overall strategy,'' he said.

Calls to Penske's headquarters in Troy, Mich., were not returned yesterday. One analyst said the closings would probably make it more difficult for Kmart to attract shoppers at a time when its executives were trying to turn the company around.

''It's just adding insult to injury,'' said the analyst, Emme P. Kozloff of Sanford C. Bernstein. ''And it shows how dysfunctional the relationships have been.''

Months before the bankruptcy filing, some manufacturers that supply clothing and other goods to Kmart complained that they were not being paid on time or were being squeezed for payments or refunds on orders that had been paid.

Their complaints were seen as a sign that Kmart was struggling, which the company confirmed in early January when it announced that it was reviewing its business plans and seeking additional financing. Kmart sought bankruptcy protection less than three weeks later.

''If Penske goes, there may be some concern over brand erosion at Kmart over all,'' said Burt Flickinger III, a managing partner at Reach Marketing, which advises retailers. ''Just as Martha Stewart is the biggest brand indoors, Penske is the biggest brand outdoors.''