R.H. Macy & Co., the New York retailer famous for its huge Manhattan flagship store and its Thanksgiving Day parade, Monday sought protection from its creditors in bankruptcy court while it attempts to get its financial house in order.
Lawyers for Macy, taken private in a management-led 1986 leveraged buyout that saddled the company with billions of dollars of debt, filed the petition in Federal Bankruptcy Court in New York City.
The company announced the filing at the same time.
Macy`s is hardly alone among big retailers seeking the protection of bankruptcy court. It has joined the likes of Federated and Allied Department Stores, Ames Department Stores and California-based Carter Hawley Hale, all of which have sought legal protection after piling up mountains of debt incurred with leveraged buyouts.
In the end, it was its customers` unwillingness to spend that brought the giant Macy`s, whose flagship in Manhattan is said to be the world`s largest store with 2 million square feet of selling space, to its knees, according to Macy executives.
”New Yorkers are not as impressed with Macy`s as out-of-towners,” said Meg Parsont, a publicist with Simon & Schuster in New York. ”It`s more of a touristy thing.
”I grew up staying away from Macy`s I guess because my mom was overwhelmed by it,” she said.
The Macy bankruptcy brought back memories of a childhood rhyme she and many other Easterners learned when they were young and would chant while jumping rope.
”I won`t go to Macy`s anymore, more, more; there`s a big fat policeman by the door, door, door; he will pull you by the collar and make you pay a dollar; so I won`t go to Macy`s anymore, more, more,” she recited from memory.
”If Macy`s goes, it will be a big deal, unlike Gimbel`s,” Parsont said. Gimbel`s for years was the principal competitor of Macy`s. But it closed about seven years ago, itself the victim of declining sales. In its building across 34th Street from Macy`s now is a vertical mall, which Parsont said ”isn`t doing very well.”
Macy operations are concentrated principally in the Northeast and California. But in Chicago, the firm operates the I. Magnin store on North Michigan Avenue. Two other I. Magnins, one in Oakbrook Shopping Center and the other at Northbrook Court, were closed during the last two years.
Macy bought I. Magnin and the 22-store Bullock`s department-store chain in California as its consolation prize in the bidding that erupted in 1988 for Federated and Allied Department Stores that was won by Canadian Robert Campeau.
In its statement, Macy said the bankruptcy filing will allow the firm to continue operation of I. Magnin uninterrupted. But discussion of a Macy`s Close-Out store in the Gurnee Mills outlet center in Gurnee will likely be halted during the bankruptcy.
A last-minute $1 billion rescue plan proposed by CBS Inc. Chairman Laurence Tisch, who already owns 15.6 percent of Macy`s, collapsed Friday when major creditor Prudential Insurance Co. of America rejected the terms.
”I am convinced that beginning this rehabilitative process is the best way to protect our valuable franchise,” Edward S. Finkelstein, chairman and chief executive officer, said in a statement. ”We have known for some time that Macy`s had more debt than is desirable in such a weak economy.”
The move will allow Macy, which has been at the brink of bankruptcy since July 1990, to get access to a fresh line of credit so suppliers will continue shipping merchandise.
Macy said it has secured $600 million in financing from Chemical Banking Corp. and Bankers Trust New York Corp.
The credit was obtained under debtor-in-possession rules, which would allow the two banks to be paid back ahead of other creditors.
The company`s debt totaled nearly $4 billion.
In 1991, sales at the firm`s 144 department stores and 107 specialty stores totaled $6.8 billion.
But that was far short of what the firm`s investment bankers, accountants and lawyers predicted when the management was considering the leveraged buyout six years ago, according to Kurt Barnard, a New York based retail analyst.
At that time, the management was told that in 1991 sales would total $7.5 billion and the firm would earn $69 million after taxes.
Those figures did not include sales or income from I. Magnin or the Bullock`s chain purchased two years later, Barnard said.
Instead, sales were $6.8 billion and the company lost $150 million.
”If you allow yourself to be burdened with debt and you have a slight downturn in the economy, you can expect to be in court,” said Barnard.
”The No. 1 rule you were taught by your mother was: `Don`t bite off more than you can chew,` and it applies to leveraged buyouts.”
