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Campeau's US Retailing Fiasco

Bankruptcy filing cools appetite for debt-backed deals, shakes up industry

BY placing its huge US retailing operation under protection of a federal bankruptcy court, the Campeau Corporation has tossed a bucket of ice water on the remnants of merger mania - and foreshadowed a period of turmoil in the retailing industry. Sinking under a $7.5 billion mountain of debt, Toronto-based Campeau gained temporary relief Monday from debt payments crushing its two US subsidiaries. The pending reorganization involves Federated Department Stores and Allied Stores, which operate 267 retail outlets in the United States.

The move affected roughly 100,000 employees working for some of most famous names in retailing: Bloomingdale's, Abraham & Straus, Jordan Marsh, The Bon March'e, Sterns, Maas Brothers/Jordan Marsh, Rich's/Goldsmith, and Burdines.

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The stores remain open, and managers are working to reassure employees, customers, and suppliers that business will proceed normally during the reorganization. Bankruptcy experts, however, say such proceedings - in which corporate decisions must be OK'd by a creditor's committee and a judge - rarely go as smoothly as hoped.

Some outlets may be merged or closed as Campeau's stars - (such as Bloomingdale's) are sold off. While consumers may not see immediate differences, there may eventually be upward pressure on prices as more outlets close and the industry downsizes. In the near term, analysts predict lower prices as stores try to generate cash and overcome bad publicity.

Since several leveraged buyout deals done during the ``merger mania'' of the '80s have gone belly up, the dangers of debt-financing have been more pronounced, and investor appetite for high-return, high-risk ``junk'' bonds has cooled.

Now the fourth largest bankruptcy filing in US corporate history, and easily the largest involving retailing, is expected ``to drive the nail in the coffin, for the time being, of the junk bond market and leveraged buyouts,'' says Perrin Long Jr., an analyst with Lipper Analytical Securities in New York.

Winners in the Campeau debacle, says Mr. Long, include law firms tapped to unravel the long, complex legal battles predicted to take place before federal bankruptcy Judge J.Vincent Aug Jr., of Cincinnati, where Allied and Federated have headquarters.

Losers may include bondholders, brokerage houses that underwrote Campeau junk-bond issues, and banks with unsecured loans that helped financed Toronto real estate magnate Robert Campeau's $3.7 billion purchase of Allied in 1986 and the $6.6 billion acquisition of Federated in 1988. Wall Street firms that analysts say could be hit by fallout from Campeau's flop include First Boston, Paine Webber, Dillon Read & Co., and Citibank, the largest US bank.

No matter how the Campeau failure plays out ``US retailing will be looking at significant change, deep uncertainty and heightened competition during the period ahead,'' says Cory Greenspan, executive director of the Federation of Apparel Manufacturers, a trade group.

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Some of the most famous names in retailing could disappear in the 1990s, experts agree - a result of an aging population, a maturing baby-boom generation, the eclipse of downtown shopping districts by suburban malls, and development of alternative consumer outlets such as mail-order and factory stores.

``Within the vendor community, [the suppliers of retail products] there is a widespread feeling that there are more stores than the market can justify,'' Mr. Greenspan says.

Chains put up for sale or sold recently, include Marshall Field & Co., Saks Fifth Avenue, and Caldor. B.Altman & Co., a well-known retailer, was recently forced to liquidate. Mr. Greenspan predicts a decline in US retail outlets and more alternative ways of reaching customers.

Only about half of all apparel products now reach consumers through traditional department stores, Greenspan says. The rest are sold by specialty stores (such as The Gap, The Limited, etc.), mail-order houses, or factory outlets. There are now ``two main tracks'' in US retailing, says Janet Mangano, director of research at Josepthal & Co., an investment house. One track, she says, involves carefully run diversified corporations that serve as ``networks'' for a large customer base: May Department Stores, for example, operates some of the best-known (and most profitable) chains in the US, including Lord & Taylor, Filene's in New England, Foley's in the South, and Robinson's on the West Coast.

The other track includes speciality stores (The Gap) and strong regional chains geared to specific upscale buyers, such as Nordstrom's, based in Seattle, and Dillard's, in Little Rock, Ark.

Department stores, says Ms. Mangano, will not disappear in the US, ``but there will be far fewer of them.'' She sees continued gains for such chains as May Department Stores, J.C. Penney, Wal-Mart Stores, and Sears, which, she notes, is a conglomerate in real estate, insurance, and finance, as well as retailing.

``We're not so certain that retail stores will go the way of the dinosaur,'' says Thomas Swanstrom, an economist with Sears in Chicago. ``Department stores are well positioned for the 1990s,'' he says, given an older population.

In Toronto, the question of whether Mr. Campeau's Canadian real estate empire will follow the fate of his US retail conglomeration is on the minds of Canadian analysts. Campeau's mansion in Toronto is said to be on the market, an indication of the devastation of his personal fortune.

The Canadian bank with the largest exposure to Campeau Corporation is the National Bank, the sixth largest in the country. It now owns 35 percent of Campeau's stock; the National bank and Olympia and York, a Canadian conglomerate, are the largest shareholders in Campeau.

There now appears to be a threat to Campeau's Canadian real estate assets, the basis of Robert Campeau's fortune. Any move on those assets by Olympia and York or Canadian banks could mean Campeau's Canadian office buildings and other holdings could be sold to pay debt.

``We are very confident they won't take any action against us,'' said Campeau spokesman Richard Wertheim.

Even without that calamity, Mr. Campeau has been the biggest loser with losses that may be as high as C$500 million. His company's stock price tumbled when troubles surfaced in September.

Real estate brokers in Toronto say Campeau's estate has been put on the market, secretly. ``He wouldn't want anyone to know it was listed,'' said a broker with Forest Hill Real Estate. ``The gentleman who is handling that will call you back.''

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