Macy reassures creditors, suppliers Retailer gives sneak preview of restructuring

September 01, 1992|By Bloomberg Business News

NEW YORK -- R. H. Macy & Co. released a sneak preview yesterday of an outline for its five-year restructuring plan to quell creditors' and suppliers' fears the retailer is deeply mired in problems, analysts said.

Macy, which filed for bankruptcy protection in January, outlined the steps the retailer will take to improve its operations and rejuvenate sales.

While the framework was short on financial details, it gave the creditors an idea of how Macy is trying to position itself to compete with other retailers.

"This release is intended to pacify and reduce fears of all vendors at the most critical possible time, fall, when shipments are going forward for Christmas," said Kurt Barnard, publisher of an industry newsletter, Retail Marketing Report. "Many vendors were terribly apprehensive about Macy losing money quarter after quarter."

In Maryland, Macy's restructuring has led to the closing of the Macy's store at Hunt Valley Mall and the company's I. Magnin store in White Flint Mall in Kensington. Its stores at White Marsh Mall, Marley Station mall and Owings Mills Town Center remain open.

In the latest quarterly figures available, Macy lost $225.9 million in the third quarter, which ended May 2, compared with a loss of $100.9 million a year ago. Sales at stores open at least a year, a barometer of retailers' sales strength, fell 6.4 percent from the year-earlier quarter.

Macy is expected to present a more detailed outline of its business plan to the bankruptcy court Sept. 15. A five-year plan, which will lay the foundation for its emergence from bankruptcy, is due Nov. 6.

The company had expected to have a reorganization plan completed by February.

Macy's exit from bankruptcy protection hinges on its sales and gross margins for the Christmas selling season.

The company is projecting sales will increase 1.9 percent from last year's dismal holiday season, said an individual involved in the negotiations.

Although Macy isn't counting on a surge in Christmas sales, creditors and suppliers were heartened that the retailer is making progress on its business plan.

Robert Miller, a lawyer representing the bondholders, said he expects Macy's business plan will provide a blueprint for the company's emergence from bankruptcy protection.

Mr. Miller, with the law firm Berlack, Isreals & Liberman, said Macy could emerge from Chapter 11 as early as late 1993 or early 1994. "That seems feasible to us," he said.

In May, Mr. Miller was a bit more optimistic. He thought the retailer could pull itself out of Chapter 11 by the end of the summer.

"At the very beginning of the case my group thought Macy's troubles were balance sheet related," he said. "Over time, we VTC learned it has operating difficulties as well."

Creditors and suppliers said one key piece of information Macy revealed yesterday was a profile of its core customer. The survey by Kurt Salmon/Kennedy Associates concluded Macy's typical shopper has an annual household income of $66,300 compared with $42,700 for a customer who shops at other department stores.

The survey of 4,450 shoppers also found that, though only 37 percent of Macy's customers are considered upper moderate and above, they control 56 percent of the purchasing power.

In a joint statement, Mark Handler and Myron Ullman, the company's co-chairman and chief executive officers, said, "One of the most interesting and encouraging things we learned from the market research is that our core customers -- the moderate and above-moderate shoppers who account for the vast majority of our business -- are extremely knowledgeable and loyal and shop at Macy's frequently."

As a result, Macy will hold less promotional sales to attract bargain hunters and provide quality merchandise for its core customers. Instead of sales, Macy said it will offer everyday competitive prices.

"We have great hope and expectation that the changes will be a success," Mr. Miller said. "What they found is that their core buyers of merchandise are very loyal customers. They've done extensive market research to pinpoint the profile of the Macy customer."

Bud Konheim, president of Nicole Miller Ltd., interpreted the survey as an indication that Macy will steer more toward higher-priced merchandise.

Mr. Konheim cites the high sales volume of Nicole Miller's $60 ties in Macy's stores. "A $60 tie is absolutely needed by no one, so that success is a tip-off to Macy's that the customer with disposable income wants to have fun.

"Macy will have lower sales volume, but higher cash profit," Mr. Konheim said. "That's the secret of the future. Forget unit sales, it's not there. Forget the hordes of vultures to grab things off the shelves. Americans have closets full of stuff. We're talking about people with money."

If that is Macy's strategy, it is bucking a trend among department stores that are extending their moderate-priced merchandise lines, Mr. Barnard said.

"The fact of the matter is that virtually all upscale stores are downtrending, even companies like Saks Fifth Avenue," he said.

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