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Jennifer Marks

A new low

Hats off to Walter Loeb, the feisty pundit who is often called "the dean of retail analysts." At the National Retail Federation's annual conclave in New York last week Loeb took part in a panel discussion whose topic was "The Economic Outlook for the Retail and Consumer Products Sector for 2002." Near the session's conclusion, the panelists were asked what they considered most discouraging as they looked toward the industry's future.

"Rumors," said Loeb, noting that people associated with the retail industry are gossipmongers extraordinaire — an observation that produced a tittering ripple of acknowledgement from the audience. Loeb emphasized how destructive rumors can be, and how their insistent spread can become a self-fulfilling prophecy.

Clearly, what set him off was the Kmart situation, which had been kicked into high gear since Jan. 2 when a Prudential Securities report noted that "…we would not be surprised if the company were to file Ch. 11 bankruptcy..."

Note the ellipses, please. The remainder of that sentence was not picked up on in the frenetic reports that churned out immediately afterward and sent the stock plunging. In full, the Prudential statement read: "In our opinion, the next six months represent a critical time for Kmart, and we would not be surprised if the company were to file Ch. 11 bankruptcy if trends do not improve."

The report went on to note that Prudential did not consider bankruptcy imminent.

No matter. In short order, other analysts and agencies raced to cut their ratings on Kmart, including UBS Warburg, Moody's Investment Services and Standard and Poor's.

By the time Loeb made his remarks 12 days later, Kmart's stock was trading around $2.80. By the following morning, NRF attendees clustered around television sets between sessions listening to financial network reports that Kmart's stock was trading at 1967 levels on the news that the company's board of directors was meeting to discuss financial options, including bankruptcy.

Now, as a New York Times story noted the same morning, the board was holding a regularly scheduled meeting. The Times also was careful to point out that Kmart's $1.5 billion line of credit would not come due until December and that the company had about $900 million remaining on the credit line. In addition, two of Kmart's largest suppliers, Procter & Gamble and the Fleming Companies, had reported to Bloomberg News that they were being paid on time and were still shipping the retailer. Such balance was not to be found elsewhere.

Now, it is possible that bankruptcy may have been inevitable for Kmart at some point down the road. It's also possible Kmart could bump along and manage the course of closing more stores without it.

Finally, it's possible that by the time this issue arrives in the mail, Kmart already will have been forced into a filing.

But it is unlikely that it would have done so in the opening weeks of 2002 had the storm of controversy not swirled about it.

It's an object lesson in the downside on rumormongering that any industry would do well to heed — particularly one in a vulnerable stage of reconfiguration.

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