October 08, 2002 12:00 PM

Kmart has had its share of woes recently, losing sales ground to its more successful retail rivals, Target and Wal-Mart, and even filing for Chapter 11 bankruptcy protection. But it also had a secret weapon: Martha Stewart.

The domestic diva’s exclusive line of products for the ailing store chain — some 5,000 exclusive Martha Stewart Everyday products, ranging from pillowcases to flower pots — were once the pride of the company. But the Wall Street Journal now reports that the ImClone scandal is likely to affect Stewart’s Kmart sales, and that her products “are no longer hotter than everything else in the store, Kmart conceded recently, though it said the weak economy could be the reason.”

Stewart, 60, is a prime target of a Justice Department probe into alleged insider trading over some 4,000 shares of the biotech company that she dumped last December, a day before the firm’s stock price plunged in light of news that the FDA would not be approving ImClone’s new cancer drug.

Stewart has denied any wrongdoing, but last week her broker’s assistant pleaded guilty to a misdemeanor charge as part of a plea bargain in which he is expected to spill the beans on a certain unnamed “tippee” in the case.

The day after the assistant’s plea, Stewart resigned her post as a board member on the New York Stock Exchange, giving rise to speculation that she may also quit her job as CEO of Martha Stewart Living Omnimedia Inc.

In a September consumer survey, according to the Journal, less than 17 percent of the respondents said that they were less likely to buy Stewart goods because of the ImClone scandal. And early next month, Kmart intends to roll out the Martha Christmas collection of decorations and wrappings at its 1,800 stores.

But, reports the newspaper, Kmart will not say whether or not Stewart will appear in ads for the holiday line.

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