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Indirect Effects of Big Retail Bankruptcy Case Possibly Widespread

January 16, 1990

NEW YORK (AP) _ Campeau Corp. is keeping its coast-to-coast department store empire running, but the bankruptcy reorganization of its shattered finances could have far-reaching consequences beyond its stores.

Experts say its financial troubles eventually could endanger the jobs of some of the 100,000 employees at Campeau’s 258 stores around the country, lessen the immediate trend toward price-cutting competition among department stores, and prompt investors to be more critical of proposed retailer buyouts.

″This is a once-in-a-lifetime kind of thing for all of us in this business,″ said one 30-year veteran of the retail trade, who asked not to be identified. ″The ramifications are so widespread. The domino effects are remarkable and difficult to conceive.″

By seeking bankruptcy court shelter from creditors Monday, Campeau’s Federated Department Stores Inc. and Allied Stores Corp. - which control such famous chains as Bloomingdale’s, Lazarus and Rich’s - can continue operating, covering payrolls and meeting suppliers’ bills while restructuring their debts. The fate of the store chains depends on how they untangle their balance-sheet problems. In filing the largest retailing case ever under Chapter 11 of the federal bankruptcy code, Federated and Allied said their liabilities total $7.7 billion while their assets amount to $9.1 billion.

There’s no guarantee Federated and Allied will be healthy even once they complete a bankruptcy court-supervised reorganization, experts said Tuesday.

Lewis S. Rosenbloom, an attorney who is head of the bankruptcy department at the Chicago law firm Winston & Strawn, said the success of any restructuring could be affected by such factors as the stores’ ability to continue getting credit.

Retailers generally buy merchandise on credit, so if credit dries up, manufacturers may refuse to ship, leaving stores short of inventory and customers disenchanted.

Business hasn’t been booming at U.S. department stores in recent months, but analysts say stores owned by the Canadian Campeau largely have been moneymakers. However, profitability at Allied and Federated was eroded by their enormous debt payments.

The chains mostly are regarded as well-run retailers from a merchandising standpoint.

″I don’t think there is a division there that loses money,″ said Monroe Greenstein, an analyst at the Bear Stearns & Co. investment firm.

Individual stores operating in weak markets might be liquidated in a reorganization, possibly jeopardizing jobs. However, Greenstein said, closing poor performers would enhance overall operations.

Analysts said that in terms of the retail industry’s health, the pluses will probably outweigh the minuses of the Federated and Allied reorganization.

Richard Baum of Sanford C. Bernstein & Co. Inc. said the stiff price competition that marked the Christmas shopping season - and affected profits for many retailers - will ease. Allied and Federated stores no longer must mark down prices to prop up sales in order to generate enough income to meet heavy debt payments.

Another impact could be from sales of Allied and Federated stores. Bankruptcy reorganizations often involve asset sales to satisfy creditors’ claims, and there is speculation some of the nine Allied and Federated chains could be put on sale.

The 17 stores in the New York-based Bloomingdale’s division already are on the auction block.

But even if the retailing environment improves, divesting portions of Allied and Federated could be tough, especially because many other department stores are on the market.

Besides Bloomingdale’s, other chains looking for buyers include Saks Fifth Avenue and Marshall Field’s, owned by BAT Industries PLC, and Bonwit Teller, owned by L.J. Hooker Corp. which is operating under bankruptcy court supervision.

L.J. Hooker failed in its effort late last year to find a buyer for its upscale B. Altman & Co. department store chain, and was forced to liquidate it.

Retailing property development also could be affected by the Campeau case. Developers and investors who provide financial backing might not want to build new complexes when big stores needed to anchor shopping malls are facing uncertain futures.

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