Merry-Go-Round bets all on more mainstream fall

THE BALTIMORE SUN

The dad and son didn't mean to buy clothes at Merry-Go-Round last Wednesday.

They came to the shopping center for a compact disk. But walking through Security Square Mall, they spied a rack of flannel shirts in Merry-Go-Round's entrance. On special. Two for $49.

They picked out, tried on and paid up. A muted brown plaid for the dad; black and white houndstooth, with a silver zipper, for the teen-ager.

The store, the father said, "is on the cutting edge of fashion."

Such statements, scarce for many months near Merry-Go-Round cash registers, are sweet symphonies to the company's managers. It is no exaggeration to say that the survival of Merry-Go-Round Enterprises Inc. depends on how widely those sentiments are shared.

This is prime time for the big, Joppa-based apparel retailer. All during 1994, as the company has endured a bankruptcy filing, plunging sales and $35 million in operating losses through June, managers have pointed with hope toward this month, normally their second-biggest for sales.

By August, Merry-Go-Round's supply problems would be solved, they said. By August, buyers would have had enough time to build a decent fashion package for the important fall season. By August, sales would improve substantially.

August is here.

"It's put up or shut up," said New York fashion consultant Alan Millstein. "The back-to-school period is here, and the people in Merry-Go-Round's corporate offices have got to be biting their fingernails. . .The dice have been thrown. Even if it comes up even money, it may not be enough to save them."

Early signs are mixed, at best.

The delay of 15 percent to 20 percent of August shipments to the company's 700-store Chess King/Dejaiz division, reported last week, will hurt sales and further damage the credibility of managers who had promised a late-summer fix.

"Merry-Go-Round's position is, things are getting better. But they consistently haven't been making their plan. Their plan," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a prominent New York retail consultancy that once had Merry-Go-Round as a client.

"They have had the worst numbers in the retail business for a long time."

Fall deliveries for the company's 500-store Merry-Go-Round unit and its 80-store Cignal chain are on target, President Michael D. Sullivan said last week. Cignal's sales continue to exceed last year's levels, officials said. And sales in established Merry-Go-Round division stores have been "close to flat" in recent weeks compared with the same periods last year, Mr. Sullivan added.

That's progress in a year when companywide "same-store" sales have plunged by double-digit percentages every month. Merry-Go-Round Chairman Leonard "Boogie" Weinglass said that August results will be better than the 14 percent drop in same-store revenue for July.

But the company, which had $959.9 million in revenue last year, is still struggling.

Sales for last fall's season, which Merry-Go-Round is now sweating to duplicate, were terrible and pushed it swiftly toward a Jan. 11 bankruptcy filing. Corporate same-store revenue for August 1993 plunged 16 percent compared with the previous year, so Merry-Go-Round isn't setting any records by coming close to it now.

More conservative goods

The company is in a better position to make money, however, because store apparel supplies aren't as bloated as they were last fall.

Merry-Go-Round's turnaround strategy for merchandise, just now becoming fully apparent in the stores, will be a tough trick.

Two of its big chains -- Merry-Go-Round and Dejaiz/Attivo -- have substantially adjusted their identities, including adding more-conservative goods to their fashion mixes. It's partially a reaction to last year, when the company's far-out, baggy, "hip-hop" styles were shunned by young people, sparking the financial crisis.

The change is especially striking at the flagship Merry-Go-Round stores, whose staple for 26 years has been gaudy, trendy and frequently pricey teen togs.

The preppy plaids and solids and muted flannels and denims in Merry-Go-Round Enterprises' chains now are much closer to what mainstream America is buying -- but they're also on the shelf of almost every other boutique and department store in every mall.

The sluggish economy and lackluster apparel sales so far this year won't help, either.

Competition intense

"The competition is intense. That makes it very difficult for a company like Merry-Go-Round," said Kurt Barnard, president of Barnard Retail Consulting Group in New York. "Merry-Go-Round is very much in a corner and will have to demonstrate that it can pull its weight after all."

Merry-Go-Round's bosses, wearied by the bankruptcy process, stung by unrelenting criticism, wish Fifth Avenue and Wall Street would be more patient.

Progress can be seen, they said, in the recent hiring of executives to run the Merry-Go-Round, Dejaiz and Chess King chains. More than 100 bad stores have been closed, they said, bringing the total down to about 1,300. August will mark the fourth month in a row when same-store sales declines have been less bad than those in the month before, they said. Monthly losses are getting slightly smaller.

And women's lines, which were in the tank alongside men's last winter, are now profitable -- although they represent less than 30 percent of sales.

The company said this month that it hopes to make money for the Christmas season and emerge from bankruptcy next year.

"It doesn't happen overnight," said Leonard "Boogie" Weinglass, Merry-Go-Round's co-founder, chairman and chief executive. "My God, we've only been in bankruptcy since January. . .The normal part of coming out of bankruptcy is two years, three years. It would be a million-to-one shot, if here we are in August, and all of the sudden we have a successful second quarter after we filed. No one's ever done it."

Time is short

But Mr. Weinglass doesn't have the luxury of two years to fix the company, analysts said. Merry-Go-Round's value depends solely on the profitability of its stores. It doesn't have much valuable real estate, like R.H. Macy & Co., for example, to anchor its worth through an uncertain Chapter 11 process.

Since the bankruptcy filing, operating losses and reorganization costs have whittled Merry-Go-Round's net worth from $198 million to $152 million. The powerful institutions that have invested in the company as creditors and shareholders, including mutual-fund giant Fidelity Investments, won't be happy with much more shrinking, analysts said.

Merry-Go-Round is negotiating for cheaper rents, but it won't be able to cut operating costs by significantly more than it already has.

It desperately needs a financial turnaround, analysts said, and that turnaround can come from only one place: substantially improved sales for the crucial fall and holiday shopping seasons.

"Unless Merry-Go-Round fairly quickly is able to get credibility with creditors, I think the proceedings run the risk of going out of control, where the creditors will no longer work with management," Mr. Davidowitz said. "A lot of money is at stake here. . . They are burning up cash every month."

Talking fashion

It's a Friday late afternoon. Merry-Go-Round's store in Owings Mills Town Center is starting to hum, and Boogie Weinglass, 52, is talking fashion.

"It's never been as conservative in my 25 years in the business as it has taken on this last year and a half," he said.

"Even people in the music industry, I see them wearing. . ." He walks to a shelf and picks up a cotton shirt with a button-down collar and a pattern that would have looked good on a Scottish chieftain 300 years ago. "Look. I mean, I never would have carried something like this. These are traditional plaids right here. This is what you might get in the Gap."

The franchise of the 500-strong, flagship Merry-Go-Round stores division has always been the casually trendy, the risky and the risque. Leather motorcycle jackets. Loud T- shirts. Bustiers. Slinky, low-cut dresses.

The chain isn't abandoning trendy, but it is softening its focus. America wants it, Mr. Weinglass said. "Conventional with a twist" is his term.

To demonstrate, he picks up a women's dress. It's a conservative plaid, but the cut is long, narrow and sexy. Spaghetti straps can be worn over bare shoulders or a T-shirt. Silver buttons give a hint of flash.

One question for the Merry-Go-Round stores is whether such a move to the middle -- selling lumberjack shirts next to the leather miniskirts -- will blur their identity and hurt their panache.

Mr. Davidowitz, who called Mr. Weinglass "brilliant" and "a giant talent," said the stores seem to be on the right track. "If you're Boogie you've got to strike a balance. You can't throw out the baby with the bath water," he said. "You can't turn around tomorrow and become a commodity merchant and sell polo shirts."

Mr. Barnard disagreed, saying the chain may need to move even further from its far-out roots.

"From everything I can see, it's going to be a problem for Merry-Go-Round," he said. "Evidently, Mr. Weinglass has not been able to divorce himself from the formula that launched his company to fame and fortune."

So what should Mr. Weinglass do instead?

"That is a very difficult problem," Mr. Barnard said. "I will tell you very candidly, I would hate to be in his shoes."

Merry-Go-Round also is trying to do a better job of distinguishing its chains -- many of which compete in the same malls -- from one another.

Besides toning trendiness, Merry-Go-Round stores are boosting women's clothes from about 35 percent of their merchandise to about 60 percent. In theory, that will help the Merry-Go-Round chain, which does better in women's fashions than men's, and send male shoppers to Chess King and Dejaiz/Attivo. And Merry-Go-Round gets IOU, a private label that had been in all three chains.

Chess King, which Merry-Go-Round bought last year from Melville Corp., is trying to reinforce its identity as a moderate-priced casualwear chain for a more conservative young man. The Dejaiz/Attivo stores are undergoing the most radical alteration, switching to dressier, more expensive clothes -- including black pants, blazers -- and carrying high-profile brands such as Calvin Klein.

The conversion hasn't worked yet. Dejaiz/Attivo "is the biggest drag on our sales," Mr. Weinglass said. The company intends to scrap the Attivo name eventually, he said.

The retailer is also trying for the first time to account for regional tastes in a major way, hiring planners and allocators to make sure short sleeves and sweat shirts don't end up in the wrong latitudes.

"We used to carry some heavier stuff down in the South," Mr. Weinglass said. "Nubbier fabrics. Sweaters. Some outerwear -- just stuff that had no chance of selling in Texas, Mississippi and Georgia. Now my whole crew is out in L.A., buying a package for the South. We've never done that."

Managers are stocking far fewer clothes overall. Spooked by last year's massive write-offs for unsold goods, they've intentionally pared fall store inventories by 20 percent compared with last year.

"The game plan is to turn the merchandise faster," Mr. Sullivan said. "That's working in the Merry-Go-Round division. Our comps are close to flat in that division, with less inventory."

Good reviews

Would-be customers apparently like the clothes. Interviews with more than a dozen teen-agers and young adults at several stores yielded mostly positive comments -- especially when they compared the goods to last year's offerings.

"This is something I would never buy," said Ryan Millman, 16, of Owings Mills, picking up an apparent hip-hop holdover, a superbaggy black overall with white threading. "This is what the whole store used to be, mostly."

"Flannels are real popular now, but most of them, the styles, they're practically the same kind of pattern," said his friend, Brad Rosenberg, 15. He saw a few that he liked.

Some critics have questioned whether Mr. Weinglass still has the style-picking savvy that built Merry-Go-Round into a national power in the 1970s. He returned to the company last year after a decade-long semi-retirement.

Perhaps the more relevant question is whether he can pull people into his stores when much of the new merchandise looks like everybody else's -- especially since Merry-Go-Round isn't known for more mainstream styles.

A $7 million cable TV and magazine ad campaign starting this month will help, Mr. Weinglass said. And the chain will benefit from the ambient population of young mall rats trolling the stores, he argued, whether or not they hated 1993's clothes.

"Imagine going into a restaurant," he said, sitting on a public bench in Owings Mills Town Center. "When you have a bad meal there, you ain't going back. You'd have to get in your car. In a mall, it's more forgiving than a restaurant. In a mall, these kids are here. See this guy walking by in the hat? When he walks by Merry-Go-Round, even though it turned him off last year, he sees that plaid shirt that might hit his fancy. Or those stripes. . ."

If the guy doesn't, Merry-Go-Round's trouble will get worse.

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