New CEO tackles complex woes of Merry-Go-Round

July 16, 1995|By Alec Matthew Klein | Alec Matthew Klein,Sun Staff Writer

Friday, July 7: Richard P. Crystal, a top executive of R. H. Macy & Co., boarded a plane in New York bound for Baltimore, where it took a scant seven minutes to finalize his contract to become the next president and chief executive officer of Merry-Go-Round Enterprises Inc. He immediately flew back to New York.

Sunday, July 9: Mr. Crystal returned to Baltimore.

Monday, July 10: Three weeks earlier than planned, he started his first day on the new job.

There just was no time to spare.

The question is, how much time does Mr. Crystal have to turn around the bankrupt fashion retailer?

Like almost everything else at Joppa-based Merry-Go-Round, there are no simple answers.

In one corner, there are apparel gurus like Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting firm in New York, who says: "If there is no progress by the Christmas season this year, you have a cadaver."

But others, such as attorney Stephen Selbst, representing the company's equity committee of shareholders, assert that it will take more than a year before Mr. Crystal can even begin to forge an imprint.

"My committee is not nearly as pessimistic as the industry analysts," Mr. Selbst said. "We believe there is a core business that can be revived. It's easy for people simply looking at the aggregate numbers to draw a pessimistic conclusion . . . but we remain confident we have the right guy."

There is at least one thing all parties agree upon: The company numbers are not good. Sales at stores open at least a year, a benchmark measurement of performance because it factors out sales in new stores, have not registered a gain since December 1992. Shareholder equity has plummeted from $191.2 million in fiscal 1994 to $5.7 million a year later. More than 460 stores have been shut and 4,000-plus employees laid off since the company filed for reorganization bankruptcy protection in January 1994.

But Mr. Crystal, Merry-Go-Round's fourth CEO in two years, insists he hasn't contemplated the pressure or prospects of lasting long enough to fulfill his three-year contract -- a package worth well in excess of $3 million -- to reverse the fortunes of a chain of about 980 stores geared toward teen-agers and young adults.

"I'm not viewing this as pressure; I'm viewing this as a challenging opportunity, and I believe that over a period of time this will be a successful company," the 50-year-old veteran of New York apparel said in his empty new office on Day 3 of the job.

Mr. Crystal's crisis-management predecessors had great expectations, too, drawing up a business plan that projected a 10.5 percent increase in same-stores sales for fiscal 1996 ending next January. So far, the best month for comparable sales was April, when the company broke even. Every other month this year has brought double-digit drops.

But to their credit, the two turnaround specialists -- Thomas C. Shull, acting as chairman and CEO, and James Kenney, serving as president and chief operating officer -- did a good deal of what they were asked to do, eliminating more than $60 million in annual expenses through store closings, layoffs and by slashing other costs.

But that hasn't stopped the bleeding. June sales were down $15 million, and the company lost $19.2 million for the first quarter that ended April 29, after a year that lost $186.3 million.

"Sure there's anxiousness about this," said Herb Stiles, portfolio manager at T. Rowe Price Associates Inc., a major shareholder with about 5 percent of Merry-Go-Round's stock. "Where is it going to stabilize? When is it going to start showing what its true value is?"

Probably not during the important coming back-to-school season, industry analysts and others agree. Apparel orders, made months in advance, are already in, leaving little for Mr. Crystal to affect until the next major shopping season: Christmas.

"Let's put it this way: If he gives evidence early on, within the next two or three months, that he is initiating a set of strategies that one must conclude are promising, he may have a year, probably not a year, probably through Christmas," said Kurt Barnard, president and publisher of Barnard's Retail Marketing Report, a forecasting newsletter in New Jersey.

The holiday season

Mr. Crystal acknowledges that, "for the most part," his impact will first be felt during the holiday season. But he cautioned: "Not everything is hanging on one Christmas. . . . One month should not be the be-all and end-all."

Nor should anyone expect one single devastatingly effective item, a Pet Rock-like phenomenon, to salve sales. "Obviously, if some great hot item came along, that would be helpful," he said. "But I don't think you can hang your hopes on a single item."

It's not that simple, analysts agree.

Not to be ignored are things such as the national economy. In June, still operating under bumped-up interest rates, consumers spent cautiously, which was reflected in sluggish sales at specialty apparel chains like Limited Inc. and Gap Inc.

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