Merry-Go-Round picks new CEO for turnaround

THE BALTIMORE SUN

In its boldest attempt to stem millions in monthly losses, Merry-Go-Round Enterprises Inc. said yesterday that it would name a new chief executive: Thomas C. Shull, a corporate turnaround specialist who most recently helped Macy's recover from a bankruptcy filing.

Merry-Go-Round also said it would appoint James Kenney, Mr. Shull's consulting partner and also a former R. H. Macy & Co. manager, as executive vice president and chief operating officer.

The move comes two weeks after Merry-Go-Round founder Leonard "Boogie" Weinglass announced his decision to step down as chief executive but stay on as chairman. Officials said yesterday that Michael D. Sullivan, the longtime president who helped build the Joppa-based retailer to its present size, will also leave, after a transition period.

"Mike did a wonderful job at Merry-Go-Round but ran into some tough times the last couple of years," Mr. Weinglass said in an interview. "Sometimes you can't see the forest for the trees, myself included, and when you bring in new people, they see what needs to be done." Mr. Sullivan was unavailable for comment yesterday.

Both appointments require the approval of Judge E. Stephen Derby of the U.S. Bankruptcy Court in Baltimore. There were indications yesterday that some Merry-Go-Round shareholders might formally object to Mr. Shull's and Mr. Kenney's hiring because of the turnaround managers' ties to Merry-Go-Round's biggest creditor, Fidelity Investments.

But bankruptcy analysts said it would be difficult to persuade Judge Derby to block the move.

If Mr. Shull, 43, and Mr. Kenney, 35, take charge, they'll quickly try to cut operating costs and reduce a worrisome buildup of clothes on Merry-Go-Round's shelves in advance of the Christmas buying season, Mr. Kenney said. Cost-cutting might include job eliminations, but "there's no sweeping layoffs," he added. "We'll take advantage of natural attrition."

The 1,200-store chain employs more than 10,000 people, about 1,000 of them in Joppa.

The managers, both West Point graduates and alumni of prominent consulting firm McKinsey & Co., will also seek to extend Merry-Go-Round's term in bankruptcy court. The retailer, which entered Chapter 11 bankruptcy proceedings last January, had been scheduled to present a plan of reorganization early next year.

"Given where we need to go, our sense is that this would extend the bankruptcy process, in terms of having a plan, probably until summer," Mr. Kenney said.

Creditors praised the announcement.

"I think they're great guys. I think it's going to be beneficial to the company," said Marc Lasry, senior managing director of Amroc Investments Inc., a large buyer and broker of securities in troubled companies.

But one retail analyst questioned whether Mr. Shull, who would also take the title of president at Merry-Go-Round, and Mr. Kenney have enough experience with specialty apparel chains.

"These are quality people, but whether they can make an impact on a situation like this, in a different environment than they've had, I'd have to say the book is out," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting firm.

Until last summer, Mr. Shull was executive vice president and the No. 2 manager at Macy, the department store chain that sought bankruptcy protection three years ago. Mr. Kenney was a senior vice president. Previously partners in Meridian Strategies, California-based consultancy specializing in retail and aerospace turnarounds, they were hired at Macy in June 1992 to draw and implement a five-year strategic plan and a reorganization plan.

At Macy, they worked on cutting expenses, improving computerized inventory management and appointing "buyer-planners" at the store level to help gauge what local consumers wanted.

Mr. Shull was chief negotiator in Macy's merger talks with Federated Department Stores Inc. Both men were involved with Macy's specialty apparel chains -- Aero Postale and Charter Club -- and learned lessons there that can be applied to Merry-Go-Round, Mr. Kenney said.

"They're no-nonsense people," said Mr. Weinglass, who has moved back to his home in Aspen, Colo. "They're not looking to turn this place upside down, but they certainly know how to cut costs and turn around a business."

Mr. Shull and Mr. Kenney resigned from Macy in September to set up Meridian Ventures, a turnaround consulting firm based in Hilton Head, S.C.

Merry-Go-Round, which operates stores under the names of Merry-Go-Round, Dejaiz, Chess King and Cignal, has booked $44.9 million in operating losses on revenue of $494.5 million for the eight months that ended Oct. 1. The company has been hurt by merchandising missteps that have caused double-digit percentage sales declines on a same-store basis each month this year. Creditors, unhappy with the continuing losses, had suggested hiring a turnaround manager to Merry-Go-Round's board as early as last August.

Mr. Kenney, who with Mr. Shull will work on a one-year contract, said that "the overall picture at Merry-Go-Round is very bright." But, he said, "there's definitely a high level of inventory in the stores. That's something we're going to have to address fairly quickly" through discounts, redistribution or other means.

Merry-Go-Round has already closed more than 200 stores this year. "It would not surprise me if more store closings were in the plan, but I would say the bulk of the store closings have already happened," Mr. Kenney said.

The company will probably continue to run four separate store divisions, he added. But there may be opportunities to cut costs in such "back office" operations as warehousing and distribution, he said. He expressed confidence in Frank Tworecke and Lou Spagna, executives hired by Merry-Go-Round last summer to improve its merchandise.

While at Macy, Mr. Shull and Mr. Kenney worked closely with Daniel Harmetz, a money manager at Boston-based Fidelity Investments who holds big pieces of debt at both Macy and Merry-Go-Round. The worry among Merry-Go-Round shareholders is that Mr. Shull and Mr. Kenney would develop a reorganization plan that favors Fidelity and other creditors over owners of Merry-Go-Round stock.

The news of the two executives' appointment "was a surprise," one large shareholder said. "They were very close to Fidelity for an extended period of time."

Mr. Kenney denied that he and his partner would favor one class of security holder over another. "We are really committed to building a consensual plan," he said. Fidelity declined to comment.

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