Finkelstein Now Faces His Biggest Career Challenge

When Edward S. Finkelstein clinked glasses of Dom Perignon with Robert Campeau on March 31, 1988, he sealed a plan for R.H. Macy & Co. to buy from the Canadian developer and takeover artist three choice California chains--Bullock’s, Bullocks Wilshire and I. Magnin.

He also sealed Macy’s fate.

The debt that Macy’s took on to accomplish the $1.1-billion deal--on top of a $3.5-billion management-led buyout in 1986 that converted the company to private ownership--proved too much even for Chairman and Chief Executive Finkelstein, long admired as one of the few merchant kings in retailing.

Known as much for his big ego and hot temper as for his innovative merchandising, Finkelstein, who turns 67 in March, now faces the biggest challenge of his lifetime career at Macy’s.

After eleventh-hour rescue efforts fell through, Macy’s was forced on Monday to file for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code because of its pressing debt load.

In the midst of an unforgiving recession, Finkelstein must somehow lead the company out of the chasm of bankruptcy court protection--not only to save face but also to restore the personal fortunes that he and other longtime colleagues have riding on the company’s success.

Many retailing and clothing industry executives said Monday that Finkelstein is still the best man to get Macy’s back on track, and he is expected to remain in charge at least for now. That is despite the fact that he fought the idea of filing under Chapter 11 tooth and nail, telling friends that he viewed it as an overused tool that retailers were using to try to get out of trouble.

“It is an economic solution that . . . he finds very distasteful,” said Bud Konheim, chief executive of Nicole Miller Ltd., a Macy’s supplier that makes dresses and ties. “This is a psychological shot in the head.”

It certainly is not the outcome the retailing world would have expected from the man who ascended in 1980 to the top posts at Macy’s on the basis of his success at turning around troubled pockets of the company.

Born in New Rochelle, N.Y., on March 30, 1925, Finkelstein began as a management trainee at Macy’s immediately after earning a master’s degree in business administration at Harvard in 1948.

He progressed through the merchandising ranks, and in the 1960s he was part of a team that helped return Macy’s flagging New Jersey division, Bamberger’s, to profitability. His reward was to be named president of Macy’s California division in San Francisco in 1969.

In 1970, as he sat in on a women’s sportswear review, Finkelstein heard a buyer talk about a new segment of women customers who were outgrowing the junior phase and would be looking for clothes to reflect a “spirited outlook.”

Finkelstein, who tooled around the city those days in a Jaguar with a MACYS 1 vanity plate, seized on the demographics and created a Young Collectors department and the basement-level Cellar in the Union Square store, featuring housewares and gourmet foods. Both were later duplicated throughout the chain.

“He brought a specialty-store feeling to department stores,” said Frank R. Mori, president and chief executive of Takihyo, a New York company that owns the Anne Klein design house and half of Donna Karan’s.

Another challenge awaited Finkelstein in 1974, when he was sent back to the East Coast to be president and chief executive of the lackluster New York division, where he renovated the drab Herald Square flagship store, tossed out the main-floor bargain bins and boosted profits.

Finkelstein had been chairman and CEO of the overall company for five years when he stunned the retailing industry with a plan for a management-led buyout at what seemed to many on Wall Street as an inflated price of $70 a share. It was to be the first of many such deals that would cripple some of the nation’s top retailing companies.

At the time, Finkelstein said the buyout was designed to hold onto key executives and to provide a powerful financial incentive to make the chain thrive. But outsiders viewed it as a get-rich-quick plan. They contended that Finkelstein--who invested $4.4 million of his own money--and 348 other Macy’s executives apparently hoped to sell their stakes back to the public for higher prices once Wall Street became bullish again.

Shareholders approved the deal in June, 1986, just as Macy’s longtime rival, Gimbels, was going down the tubes. Citing a long list of retail failures, Finkelstein told shareholders at the meeting that Macy’s, as a private company, “can implement the long-term strategies and planning necessary to respond to current trends in this fast-moving economic environment.”

Misjudging Macy’s financial health, Finkelstein entered into an unsuccessful bidding war with Toronto developer Campeau for Federated Department Stores. But he got a “consolation” prize in the form of Bullock’s, Bullocks Wilshire and I. Magnin--high-profile chains that suddenly gave Macy’s a huge stake in Southern California. The downside was that the purchase strapped Macy’s with an additional billion dollars in debt just as the economy was beginning to founder in earnest.

As Macy’s losses mounted and speculation that the company was in trouble heated up in recent years, Finkelstein waged a one-man crusade to restore confidence. Known for taking media coverage personally and holding grudges against reporters, Finkelstein went so far as to place a full-page ad in the Women’s Wear Daily trade publication, criticizing “outrageous statements by so-called experts.”

Indeed, it seems that Finkelstein himself could not quite believe how bad things were. As recently as Jan. 11, as the company was being forced to postpone payments to vendors, he was publicly denying that it would have to seek Chapter 11 protection.

Although many observers say Finkelstein’s woes are an example of pride going before the fall, several longtime Macy’s suppliers reached Monday said they still feel a great deal of loyalty to Finkelstein.

“Last Friday . . . I shipped (to Macy’s) knowing I was shipping into a Chapter 11,” said Konheim of Nicole Miller.

Whether all vendors will be so understanding is unclear. And whether Finkelstein will continue to engender loyalty in his employees is another question.

“He has a conscience,” said Walter F. Loeb, a retailing consultant in New York. “Taking so many people (with him in the buyout) and not being able to save their investment will stick with him the rest of his life.”