Federated, Allied Still Have a Long Way to Go : Retailing: A year after filing for bankruptcy, the chains are making progress, but big debts are slowing their emergence from Chapter 11.

Last year at this time, Bernard Chaus received some rubber checks in the mail.

The worthless payments, from Federated Department Stores Inc. and Allied Stores Corp., were hardly a surprise. News was spreading that the retailers were on the verge of filing for bankruptcy protection.

“Some of our checks went through properly,” said Chaus, a leading supplier of women’s apparel, whose company bears his name. “Unfortunately, some didn’t.”

Today, Chaus is one of many creditors still owed money by Federated and Allied, which own Bloomingdale’s, Abraham & Straus, Stern’s and six other retail chains that control nearly 260 stores across the United States.

Nonetheless, Chaus is still shipping them clothes. “They pay on time,” he said. “They’re probably the best-paying stores in America.” Others apparently agree. Up to 95% of their suppliers are estimated to have resumed deliveries.

In fact, Federated and Allied have used the continuing flow of merchandise to persuade shoppers that the effects of the Jan. 15, 1990, bankruptcy filing--the largest by a U.S. retailer--have been largely transparent.

One year after the Chapter 11 filing, most shoppers might not see any differences. Most stores carry much of the same merchandise. With some exceptions, operations remain unchanged. There have been no huge layoffs or losses of key executives.

“At the very outset, we stabilized the companies, both operationally and financially,” James Zimmerman, Federated and Allied’s president, is telling employees in a series of meetings this month. “To our customers, the Chapter 11 process has remained all but invisible. . . . We are slowly, but significantly, restoring these companies to profitability.”

But retail experts contend that the chains are still relying too heavily on big sales, are ceding ground to competitors because physical improvements have been delayed and are losing too much money to rebuild and repay debt this year. There is skepticism that the companies can move fast enough to meet their goal of emerging from bankruptcy this year.

“They had a terrible year,” said Howard Davidowitz, an investment banker who specializes in retailing. “Will it get better? It ought to, given their properties. . . . If it doesn’t, a lot of people (creditors) will start losing their patience.”

The bankruptcy stemmed from the huge debt that Canadian-based Campeau Corp. incurred when it purchased Allied and Federated between 1986 and 1988 for a total of $10.2 billion.

Campeau’s unraveling sparked price wars with competing merchants. This was especially true in New York City, where Allied and Federated dominated the retail scene.

So cataclysmic was the failure that it came to symbolize the risks of leveraged buyouts and junk bonds. Later this month, Robert Campeau will give testimony about the purchase to an angry creditors committee.

But while recent history is recounted in court, much remains to be done if Federated and Allied are to emerge from bankruptcy this year.

The retailers must file a reorganization plan to repay more than $7 billion in debts.