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March 3, 2009 7:29 PM

Retail

A Little Candor Can Help

Regarding the season’s bumper crop of rumors on cutbacks, asset sales and bankruptcies, retailers have stayed steadfast in their “no comment” response to media inquiries. When they feel beneficent, the response is, “We don’t comment on market speculation. You’ll...

Regarding the season’s bumper crop of rumors on cutbacks, asset sales and bankruptcies, retailers have stayed steadfast in their “no comment” response to media inquiries. When they feel beneficent, the response is, “We don’t comment on market speculation. You’ll be the first to know if there’s anything to say.”

There’s some rationale for ducking the speculation. There are just too many of them to field, and if the rumors are true, developments that would materially affect a company must be publicly and widely disclosed by law.

“Even in normal times, there always are many rumors and much speculation. It all can be very distracting for a company and organization,” said Jim Sluzewski, Macy’s Inc.’s spokesman. “By adhering consistently to a policy of not responding to rumors and speculation, and consistently announcing news when there is something to announce, a company can deal in facts instead of responding to what others are saying.”

One chief executive officer, who requested anonymity, was asked in what situation might it be best for a retailer to respond to rumors — or not to. “Tough question,” the ceo said. “There probably is not a right answer. As a general rule, I would say that you don’t do it.”

But in these extraordinary times, the rules seem to be bending. Istithmar, the owner of Barneys New York, this week unequivocally denied rumors the store is up for sale. “There are a lot of rumors about Barneys. All of these are unfounded and unwarranted,” Istithmar ceo David Jackson told WWD. The rumor about Barneys being for sale is “completely wrong.”

And Saks Fifth Avenue, in its fourth-quarter conference call last week, broke its silence on the rash of rumors of a cash crunch and potential Chapter 11 filing. “There have been a lot of rumors, including bankruptcy,” Saks chairman and chief executive Stephen I. Sadove said. “Although it is policy not to comment on bankruptcy rumors, all of the actions [that he outlined earlier in the call] are ensuring we are free cash flow positive in 2009. Bankruptcy would destroy shareholder value. Our intent is to insure and enhance shareholder value.”

Later, Sadove explained his reason for breaking the silence: “There is so much stuff out there in the marketplace. Some of it is silliness,” he told WWD.

He went the extra yard by outlining Saks’ cash and debt position, its revolving credit facility and contingencies to stay liquid, citing “unencumbered” Saks-owned real estate, notably the Fifth Avenue flagship. It’s an extraordinary property that given its magnitude, landmark status and triple A location could be borrowed against or sold and leased back, and could have a taker even in a moribund market. The Saks team accounted for the chain’s $99 million fourth-quarter loss, explaining it stemmed from markdowns and margin erosion, and even acknowledged that in some categories, the store went too far.

At the end of the day, Saks’ stock leaped 24 cents, or 13 percent, to close at $2.09, demonstrating the retailer made its case effectively, coming across more evenhanded and in control than defensive or overreactive.

The lesson of it all? Perhaps these days, a little candor can soften the hard knocks of a tough season of uncertainties.
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