Is it time to close Kmart?

Sears Holdings (SHLD) is trying to fix its operations and has made some progress along the way. But the company is being dragged down by Kmart, raising questions about whether that discount chain's time has come and gone.

Would Sears be better off closing Kmart? At the rate things are going, the answer is yes.

Kmart is stuck in a rut. Sales at its stores open at least a year fell 3.8% over the crucial holiday shopping season, The Wall Street Journal reports. Now it has just 0.6% of the nongrocery retail market. In the first nine months of its current fiscal year, the chain posted a $98 million operating loss and saw sales slide 5.5%.

We won't know for a while whether Kmart made a profit in 2012, but it lost money on an operating basis in 2011.

The Kmart stores that I've been to are remarkably similar. They're dirty. The shelves are cluttered, yet the customers are gone. Employees are nowhere to be found.

The Journal found a similar scene at a Kmart in Manhattan, where it reported abandoned carts full of merchandise, unevenly stacked towels and unfolded pajama sets lying about. "The tile floors looked as though they hadn't been mopped in some time, and clothes were piled in the corners of the dressing rooms," Dana Mattioli wrote.

Kmart stores in New Jersey took that a step further, selling expired infant formula and over-the-counter drugs. The chain will pay more than $300,000 in fines and be subject to inspections as a result.

Kmart used to fill an important role for budget-conscious shoppers. But those customers have many more places now that can meet their needs. Dollar stores sell groceries and household necessities. Wal-Mart (WMT) has a bigger selection than Kmart, often at lower prices.

In fact, the Journal cited data showing Kmart's prices were higher than Wal-Mart's and Target's (TGT) in five out of six items it checked at all stores.

Granted, that's a pretty small sample. But if that holds true and Kmart isn't necessarily cheaper than competitors, then what is Kmart's reason for existing?

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