Campeau Says He’ll Expand Ralphs
Robert Campeau, the single-minded Toronto developer who has changed the face of U.S. retailing, got his first glimpse at a Ralphs supermarket Wednesday, liked what he saw and announced plans to expand the chain he will soon own.
In a brief interview at Ralphs Grocery’s Compton headquarters, where a giant American flag flapped under a stormy sky, the Canadian and Ralphs Chairman Byron Allumbaugh outlined plans to remodel 100 stores and open 20 new locations over the next 2 to 2 1/2 years. A few of the new stores will be in San Diego, with the rest located in pockets in Los Angeles and Orange counties that the 129-store chain does not now serve.
“It’s a known thing in the industry that Ralphs is probably the top supermarket chain in North America,” Campeau said. “I wouldn’t necessarily want to own a supermarket in Wisconsin, but Los Angeles is different. It’s a growth area.”
Campeau toured a Ralphs store in Manhattan Beach and a Ralphs Giant store in Harbor City before holding several hours of meetings at the Ralphs offices. In a statement Wednesday, he said his company is concentrating on completing its purchase of Federated Department Stores, Ralphs’ owner.
Although details of the plan remain unsettled, he said he would “create a financial structure” that would allow Ralphs management to own a stake.
“We remain committed to continuing Ralphs’ successful performance and management style, as well as supplying ample resources for its future growth and expansion,” he said. Ralphs will “continue as an independent supermarket chain operating under its current name and management.”
Campeau, through a new subsidiary, will own a majority of Ralphs, with the supermarket company’s management holding a stake that is “not minimal,” Allumbaugh said.
An industry source suggested that some Ralphs officials might buy stakes in Ralphs with proceeds from the sale of personal Federated stock holdings. In addition, Campeau is expected to reward managers who improve performance with incentives such as options to buy more shares in the company. He has used that strategy at Allied Stores, which he bought in late 1986.
Of the plan, Allumbaugh said with a laugh: “It will stimulate us.”
Although Campeau said a “restructuring” of Ralphs is in the offing, he declined to say whether jobs would be lost as a result. Allumbaugh also dodged the question, saying only that there would be “no major upheaval.”
Net employment a year from now, Allumbaugh added, will be greater than the current figure of just under 17,000.
While acknowledging that Ralphs would incur substantial debt as part of this buyout, Campeau said it would be “shortsighted” to raise prices and thereby force customers to cover interest payments.
“If we didn’t think we could carry it (the debt load), we would not be in it,” he said. “The public will not pay for it.”
No Change of Heart
Ron Rotter, an analyst with the Los Angeles investment firm of Morgan, Olmstead, Kennedy & Gardner, noted that Campeau intends to use a type of financing for his new Ralphs subsidiary that would put the risk on the lenders’ shoulders rather than on Campeau’s. The subsidiary would finance the purchase of Ralphs with high-risk, high-yield “junk bonds.”
“Where’s the risk?” Rotter said. “If they default on loans, no other Campeau assets could be sought after. In other words, the assets of Ralphs itself would be the collateral. They can have their cake and eat it, too.”
Campeau contended that his decision to keep Ralphs did not represent a change of heart. Early in his pursuit of Federated, which began Jan. 25, he had indicated in documents filed with the Securities and Exchange Commission that he might consider selling the non-department store units of Federated, and Wall Street observers quickly assumed that Ralphs was a logical candidate for sale.
Plans for Bloomingdale’s
“We never said we would sell Ralphs,” Campeau said Wednesday. “I think it’s a great company. It’s different retailing than apparel and dry goods. In a slowdown--although we hope we don’t have one--this wouldn’t be affected.” In fact, he added, studies show that customers tend to spend more in grocery stores in periods of economic slowdown than at other times.
He added that the agreement to sell Bullock’s, Bullocks Wilshire and I. Magnin to R. H. Macy & Co. for $1.1 billion “clinched” the decision to hold on to Ralphs.
And what of Bloomingdale’s, a crown Federated jewel that Campeau plans to expand? “I expect it to come to California sooner rather than later,” he said. Pushed on the matter, he said Los Angeles would have a store within two years.
“It will have to be a very good site, and it will be a big store,” he said, adding: “I don’t want (Bloomingdale’s Chairman) Marvin Traub to clobber my head, but it would be 300,000 to 400,000 square feet.”
