Dan Dorfman - business journalist's influence on discount retailers - The Power Players

Discount Store News, Dec 4, 1995

Business journalist Dan Dorfman can throw more fear into a discount retailer than any hurricane, drought or blizzard. When he roars, people listen - and discounters cringe.

Dorfman's three-minute televised reports, a fast-paced mixture of stock market facts, rumors and tips that airs during the heart of each trading day, have generated a dedicated audience of hundreds of thousands of investors and brokers over the five years he has been doing CNBC cable telecasts. His reports often spur a flurry of market activity.

Discount retailers know all too well about Dorfman's ability to move markets. In the last six months, he has said or implied that five chains - Bradlees, Caldor, Kmart, Filene's Basement and Charming Shoppes - were headed for bankruptcy. Although only Caldor and Bradlees have since declared Chapter 11, Dorfman's reports caused each company's stock to fall substantially - 54% in 54% the case of Charming Shoppes, which suspended its dividend three days after Dorfman's on-air warning.

Dorfman's reports on discounters may have done more than cripple their stock prices. After hearing Dorfman's broadcasts and noticing the subsequent stock freefalls, many suppliers and factors become nervous, squeezing the flow of merchandise to stores. Indeed, some retailers wonder if Dorfman's warning of impending bankruptcy actually creates a self-fulfilling prophesy.

Bradlees spokesman Coleman Nee says the retailer had "legitimate bad news" when Dorfman's report came out and that rumors of a Chapter 11 were already circulating. But, Nee adds, "when an individual in the media picks up on [the rumors] and announces them as being almost certainties, then there's a snowball effect, which hurts business when suppliers and factors get nervous about your ability to keep accounts current.

"The media definitely played a factor in our having to make the decision to file for Chapter 11," says Nee.

Dorfman, who also writes for Money magazine, is also criticized for using information from sources who may have something to gain from a rise or drop in a stock's price. He is currently being investigated by the U.S. Attorney for the Eastern District of New York for possible insider trading violations associated with his relationship with stock promoter Donald Kessler, a frequent source.

George Harmon, a business journalist and professor at Northwestern University's Medill School of Journalism, says he believes Dorfman is on the level, but he is concerned about Dorfman's reliance on single unnamed sources for his reports.

"He's a terrific reporter who has a long track record of getting the stories right," says Harmon. "But even if you're accurate a hundred times in a row, it doesn't mean you can take the opinion of one person and announce it as fact.

"I'd want to be very satisfied that a company was headed for bankruptey before I said it," Harmon adds. "To me, that's on the category of saying, `So-and-so beats his wife."'

Although Money suspended Dorfman's column pending the outcome of the investigation, his daily TV broadcasts continue, so his potential to wreak havoc on retail stocks is undiminished.