Recovery Effort Begins at Campeau Corp. Retail Unit : Retailing: Ex-Treasury Secretary G. William Miller, the new chairman of the operation, is in charge of the firm’s comeback try.
Sinking into bankruptcy is awful. But for Campeau Corp.’s department store operations, trying to make a comeback could be a miserable experience, too.
A common quick-fix approach for an ailing company, a speedy sale of assets to raise cash, would be very difficult for Campeau for, among other factors, legal and tax reasons. At the same time, the 1990s are expected to breed brutal competition among department stores--a terrible time for companies that are trying to turn around their finances.
“Cash-rich competitors want your turf,” explained Sanford C. Sigoloff, a retailing turnaround specialist who led Wickes Cos. out of bankruptcy in 1985. He now heads L. J. Hooker Corp., the bankrupt parent of Bonwit Teller.
Campeau’s recovery effort began Tuesday as the Toronto-based concern gave its U.S. retailing holding company a new name and officially announced the appointment of its chairman. As reported in Monday’s Times, former Treasury Secretary and Federal Reserve Chairman G. William Miller is the new chairman.
He will head Federated Stores Inc., which previously was known as Campeau Corp. (U.S.). The holding company is now the parent of Southern California’s Ralphs supermarket chain along with the two department store divisions that filed for bankruptcy court protection on Monday, Federated Department Stores and Allied Stores.
Miller’s retailing empire, which was crushed by $7.7 billion in debt, faces immediate problems as well as long-term ones. For starters, customers who are concerned by news of the bankruptcy might take their business elsewhere.
The stores, meanwhile, may dig themselves into a deeper hole by missing out on some of the best spring merchandise.
Federated and Allied have won bank approval for $700 million in fresh financing, freeing the stores to buy new goods. But the recent uncertainty concerning the divisions’ financial status allowed their competitors to get a head start in placing orders.
The Campeau stores also need to smooth over hard feelings among some angry apparel manufacturers and other suppliers. Ostensibly to keep suppliers happy, the chains last Wednesday mailed out payments for due bills.
The snag, however, was that many of the checks weren’t processed by the Federated and Allied banks before early Monday, when the Chapter 11 bankruptcy cases were filed. Consequently, a lot of money will be held up, perhaps for a long time, in bankruptcy proceedings.
“If the checks don’t clear, they (the stores are going to have a serious credibility problem,” said Estelle Rose, controller of Nicole Miller Inc., which sells women’s apparel to Campeau’s Bloomingdale’s and Burdines stores.
A source close to the situation said company officials wanted to hold off on the Chapter 11 filing to give all the checks time to clear. But, the source said, Campeau officials grew worried that if they didn’t hurry, a creditor might file a suit that would put the stores into a more worrisome involuntary bankruptcy.
Over the longer haul, Federated and Allied will face a litany of industrywide problems. Many analysts expect a shakeout among department stores in coming years as a result of increasing competition from discounters and specialists such as Toys R Us and Home Club.
On top of the problem of too many stores, demographic trends are expected to work against retailers. As baby boomers get older, analysts say, they will be tighter with their dollars and look even harder for bargains.
Meanwhile, prosperous chains such as Nordstrom, Dillard Department Stores and May Department Stores are expected to use their financial muscle to squeeze struggling competitors.
There’s little chance that matters could be helped swiftly by selling the comparatively well-off Ralphs supermarkets chain or the nine Federated and Allied department store groups. Campeau released estimates prepared by its investment bankers at Merrill Lynch last week indicating that Federated and Allied’s debts exceed their assets.
In addition, selling some of the chains individually would produce hefty bills for capital gains taxes. Financial specialists estimated that Ralphs’ parent would have to pay $270 million in extra taxes if it unloaded the chain.
Moreover, selling off prosperous businesses can be self-defeating.
“If they (the chains) are good, you need them to bring in cash. If they’re not good, you don’t get the prices you need,” Sigoloff said. “You’re damned if you do, and damned if you don’t.”
Sigoloff said that tedious bankruptcy proceedings can scuttle potential deals by presenting delays, typically, of at least three months and sometimes much longer. A case in point: Campeau’s efforts to sell Bloomingdale’s have faltered because of concerns about bankruptcy at a time when fewer and fewer firms are interested in buying retailers.
Meanwhile, Federated and Allied stores may be hard-pressed to hold on to top-flight executives as bankruptcy proceedings--estimated to take anywhere from 18 months to several years--drag on. “It’s tough to keep an organization together when there’s doubt about its long-term viability,” said Philip Johnson, senior vice president of human resources at Chicago-based Marshall Field department stores.
For now, though, the U.S. retailing organization is assembling a new top management team. Along with appointing Miller on Monday, the company confirmed that Ronald W. Tysoe, currently president of Campeau’s Canadian and U.S. operations, will stay on as president of the new U.S. holding company.
It also announced that James M. Zimmerman will remain president and chief operating officer of Federated and Allied.
As expected, however, John W. Burden III, chairman and chief executive of Federated and Allied, will quit effective Jan. 31 “to pursue other interests.” The company has offered his job to Neiman-Marcus’ head, Allen Questrom, but has not received an answer.
Not all of the issues that the new top executives will face are clearly defined. Given the size of the bankruptcy case--it’s by far the biggest ever in U.S. retailing and, by one measure, the fourth largest in the nation’s history--there are plenty of imponderables.
Said Johnson of Marshall Field: “We’re in unchartered territory.”
