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CNN Live At Daybreak

Kmart Faces Bankruptcy

Aired January 17, 2002 - 05:43   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: One of the nation's largest retailers is suffering from a crisis of confidence. There is talk of bankruptcy and store closings for Kmart. Stock is at an all-time low.

CNN's financial news correspondent Lisa Leiter has more on the big problems at the Big K.

(BEGIN VIDEOTAPE)

LISA LEITER, CNN CORRESPONDENT (voice-over): Kmart has been shockingly silent as speculation builds that the retailer will shut down hundreds of stores, or even file fore bankruptcy. The board of directors met earlier this week, but did not reveal anything about the company's strategy to turn around slumping sales.

The silence is killing Kmart's stock. Investors have been dumping it for the past month, since the bankruptcy talk first started. All three credit ratings agencies downgraded Kmart's stock again Wednesday, making it more difficult for the retailer to borrow money.

PHIL ZAHN, FITCH: It appears more likely that they will probably file Chapter 11. We don't know, at this point, because the company isn't talking. But we're taking the stance that no news probably isn't good news.

LEITER: If Kmart does go bankrupt, analysts worry it could lose its best known brand: Martha Stewart, whose paints and housewares have been a big draw for Kmart shoppers.

MARTHA STEWART: We have no plans whatsoever to depart from our relationship with Kmart. If they do proclaim bankruptcy, they can choose to either terminate our agreement and -- or they could continue our -- us as a supplier. And we would -- we think our brand is so strong and so appealing and so attractive that it will find its customers. And we're not -- I'm not really worried about that.

LETIER: The question is whether Martha Stewart, Kathy Ireland or Jaclyn Smith can help Kmart overcome its greatest challenges, competing with Target's trendy image and beating Wal-Mart's rock- bottom prices. Analysts say Kmart management made two big mistakes during the holiday shopping season: cutting back on advertising and entering a price war with Wal-Mart. MIKE PORTER, RETAIL ANALYST, MORNINGSTAR: Unless Kmart can get, you know, more exclusive deals the way that it has had with Martha Stewart, or comes up with some other strategy, it's going to be -- it's going to be tough for them to compete, and especially now.

LEITER (on camera): Analysts say they do expect Kmart to survive this latest crisis. One of Kmart's strengths: its prime real estate in urban markets. But analysts also say that Kmart may eventually end up a lot smaller and a lot different than it is today. Lisa Leiter, CNN Financial News, Chicago.

(END VIDEOTAPE)

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