Montgomery Ward Files for Bankruptcy
Montgomery Ward & Co., one of the oldest names in U.S. retailing and a company that has been in rescue mode off and on for more than a decade, filed for bankruptcy court protection Monday.
Founder Aaron Montgomery Ward pioneered the mail-order catalog in the 19th century, but his Chicago-based firm lost touch with consumers as the 20th century draws to a close. The company will remain open while it seeks to work out its financial problems.
The company acted after the collapse of negotiations with lenders. It stopped paying vendors last week and faced the cutoff of inventory shipments heading into the critical back-to-school shopping season.
Ward began languishing in the 1980s as customers went upscale or chose discounters like Wal-Mart, Kmart and Target. The company tried devoting itself to home furnishing, apparel, automotive products, electronics and appliances. But it could not steal loyal Sears, Roebuck & Co. customers, and electronics stores like Best Buy and Circuit City began eating into Montgomery Ward’s market share. Once the nation’s biggest retailer, Montgomery Ward isn’t even in the top 10 today.
However, the 400-store Montgomery Ward chain--including 31 stores in Southern California--is the nation’s largest privately owned retailer. It filed for Chapter 11 bankruptcy protection in Delaware, pledging to reorganize and emerge from bankruptcy with help from a $1-billion infusion by its main shareholder, GE Capital Services.
“We have a realistic strategic business plan that will return Montgomery Ward to profitability,” said Montgomery Ward Chairman Roger Goddu, a former Toys R Us Inc. executive who was the latest in a string of would-be turnaround artists lured to the company.
Some analysts agreed.
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“Rather than a sign of weakness, this may be the first major sign of success in their rebuilding. Now they’ll be able to shed [unprofitable] stores for which they have long-term leases,” said George Rosenbaum, chief executive of Leo J. Shapiro & Associates in Chicago, a market research firm. “This may have been the main reason for the bankruptcy.”
The company has been criticized for having no clear identity. Goddu has said he wants to position Ward between bargain-basement discounters and such mainstream retailers as Sears and J.C. Penney.
Last week, Goddu announced a new merchandising plan to target the company’s core customers--30- to 55-year-old women with annual household incomes from $25,000 to $50,000.
The bankruptcy filing caps a struggle that dates to at least the early 1980s, when Montgomery Ward brought in then-Chrysler Corp. Chairman Lee A. Iacocca to speak to management on how to rescue an ailing company. Since then, the firm has struggled in an environment that has claimed many other retail chains.
Other major national and Southern California retailers who have sought bankruptcy protection in recent years--owing in part to the dramatic competitive pressures in the U.S. retailing industry and changing tastes of American consumers--are Broadway Stores Inc. and Federated Department Stores, the parent company of Macy’s and Bloomingdale’s.
Sears, another venerable American retailer, suffered many of the same problems as Montgomery Ward. But under the leadership of Edward A. Brennan, brother of former Montgomery Ward Chairman Bernard Brennan, Sears was able to reinvent itself.
Bernard Brennan was credited with resuscitating Montgomery Ward in the early 1990s, when it posted four straight profitable years. But the bottom fell out in 1996, partly due to Sears’ resurgence. Brennan, who owns more than one-third of the company, brought in Goddu last December.
Analysts also blamed the downturn in sales of consumer electronics, weak sales at the second-tier malls where Montgomery Ward tends to be located and management turmoil under Brennan.
The firm posted a $249-million loss last year after earnings of $11 million in 1995.
In addition to creating the mail-order business--its first catalog was a single sheet listing 163 items in 1872--Montgomery Ward was the first to introduce a policy of “satisfaction guaranteed or your money back,” in 1875.
The firm also claims to have invented Rudolph the Red-nosed Reindeer, a character developed by a company advertising writer who penned the original poem in 1939.
The bankruptcy filing represents a major hit for General Electric Co.’s GE Capital Services division, which owns half of Montgomery Ward. GE said it wrote off in the second quarter its investment in Montgomery Ward’s stock, which it acquired during a $3.8-billion purchase in 1988.
“We are convinced that Montgomery Ward’s filing . . . is the best way for the company to conclude a quick and effective restructuring,” Edward Stewart, executive vice president of GE Capital, said in a statement.
Montgomery Ward on Monday received the $1-billion credit line from GE to help it pay for inventory during its bankruptcy reorganization. Despite its write-off, GE Capital said it “expects to announce strong double-digit earnings growth for the quarter.”
Montgomery Ward already had borrowed millions from GE Capital this year to stay afloat. Still, it became strapped for cash and recently stopped paying vendors. In return, several suppliers stopped shipping merchandise.
“Inventory is like blood,” said analyst Barry Bryant of Rodman & Renshaw Inc. “If it doesn’t flow, the patient dies.”
Times wire services and Times researcher Jennifer Oldham contributed to this story.
