Merry-Go-Round Slows Down Recession and fashion selection have hurt retailer

September 19, 1993|By Michael Dresser | Michael Dresser,Staff Writer

Merry-Go-Round Enterprises has had its problems on Wall Street, where its stock price has dropped by two-thirds since mid-1991.

But the Joppa-based retailer is in more trouble in Professor Rebecca Mihelcic's introductory business class at Howard Community College. Among her students, most of whom fall smack-dab into the 15- to 25-year-old age group Merry-Go-Round claims as its own, the company has little value.

Of the two, the verdict of the junior college students is more ominous for the future of billion-dollar Merry-Go-Round, which operates about 1,450 stores. A dip in stock price can be dismissed as a cyclical phenomenon; the perceptions of its core customers are a retailer's lifeblood.

The company founded by Leonard "Boogie" Weinglass -- who is trying to obtain a local National Football League franchise -- apparently retains a loyal following in the 13- to 18-year-old age group. But according to the students in Ms. Mihelcic's class, about the time students finish high school they also graduate from Merry-Go-Round.

Most of the more than 40 community college students were familiar with the company, which operates several stores at the nearby Mall in Columbia. They tend to spend their money at The Gap, though. And they sharply criticize Merry-Go-Round's fashion selection, prices and service.

"I think the prices are outrageous and the clothes are poorly made," said Valerie Wrightson. "It's just not practical clothing."

"They pressure you to buy things you really don't like, then they don't give you refunds," said Michael Tucker, steamed over an incident in which his 13-year-old sister bought a $150 coat and couldn't return it.

Such sentiments are ominous for Merry-Go-Round, which has posted an eight-month streak of declining comparable-store sales. And the complaints -- combined with merchandising mistakes -- illustrate the thin line between success and failure for a company that makes its money riding fashion trends.

"They're losing market share. That's a very bad sign . . ." said Otto Grote, a veteran retail analyst with Derby Securities in New York. "Once a retailing firm loses market share in the communities where it operates, then you know that the competition is doing something significantly better."

The stock's free fall -- from $21.38 at it peak in July 1991 to $7.25 at Friday's close -- combined with Merry-Go-Round's $2.5 million second-quarter loss, was enough to bring Mr. Weinglass out of early retirement. As the company's chairman and largest stockholder, he'll work as a consultant in the merchandising operation, trying to bring some of his old magic to the company.

Analysts say that Mr. Weinglass' return doesn't indicate a lack of confidence in Chief Executive Michael D. Sullivan. The two men are said to be personally close, and Mr. Sullivan is a member of the group Mr. Weinglass has assembled to acquire an NFL franchise.

Like an NFL owner giving a vote of confidence to the coach of his slumping team, Mr. Weinglass has nothing but praise for Mr. Sullivan, whom he said "has done a phenomenal job over the years." Still, the coach might have the owner looking over his shoulder at practice for a while. Mr. Weinglass said he'll stay "as long as it takes."

Mr. Weinglass said last week that the company is taking steps to address its problems. He attributes the recent sales drought mainly to a "major error" -- plunging headlong into a rap music-inspired fashion trend called hip-hop, which never became popular as expected.

With clothing sales already weak, the marketplace was not forgiving. The slump in comparable sales, a measure of purchases at stores that were open the previous year, hit new depths in August -- Merry-Go-Round skidded to a 16 percent decline.

"We probably would have been down anyway, but if we hadn't have jumped on this one trend, we probably would have been down 4 or 5 percent," Mr. Weinglass said.

Mr. Weinglass doesn't perceive any erosion of the chain's basic franchise. The company's research of teen-agers had not picked up any of the strong negative sentiments expressed by the students in Howard County, he adds.

But the third quarter is unlikely to bring much improvement. Profit margins will take a beating as the chain tries to unload hip-hop fashions at markdowns as high as 70 percent.

Merry-Go-Round, the third-largest retailer based in Maryland, was the darling of Wall Street as it posted strong revenues and profits growth from the late 1980s through mid-1991.

Several logos

Today, the 39-state chain boasts several store logos, including Cignal, Menz, Chess King and Boogie's Diner, as well as the signature Merry-Go-Round. About 850 of the company's stores cater to young men; the remaining 600 serve both men and women. And about 450 of those stores were added this year, when Merry-Go-Round bought the Chess King young men's chain from Melville Corp. -- a deal that ensured the company would pass $1 billion in sales for 1993.

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