An article yesterday incorrectly reported the notice given laid off workers at Merry-Go-Round Enterprises Inc. The workers were given 60 days' notice.
* The Sun regrets the error.
Merry-Go-Round's new bosses made their first big move yesterday to try to revive the fashion chain, laying off 70 people at its Joppa headquarters and ordering another reassignment among senior managers who supervise its stores.
The layoff -- about 10 percent of the workers in Joppa -- cuts across all departments. Among those leaving Merry-Go-Round Enterprises Inc. is Ken Rodriguez, the respected merchant who for several years has run the Cignal division and who was the last senior manager from the company's old regime.
"Our sales volume has dropped fairly dramatically in the last year and a half, and we hadn't adjusted our expenses commensurate with that volume," said Thomas Shull, Merry-Go-Round's new president and chief executive officer. "Unfortunately, a strategic elimination of jobs is a necessary part of the equation."
The workers losing their jobs are receiving six weeks' notice plus severance pay based on experience, managers said. The company didn't say how much it expects to save in costs as a result of the layoffs.
These might not be the last cuts, either. Merry-Go-Round, which now has about 13,000 employees and 1,200 stores, will re-examine its operations after the Christmas selling season and could shrink some more, Mr. Shull said.
The company already has closed more than 200 of its Merry-Go-Round, Dejaiz, Attivo and Chess King stores this year.
The layoffs come as Merry-Go-Round investors are intensely negotiating behind the scenes over potentially millions of dollars in compensation to be paid to Mr. Shull and his partner in the Meridian Ventures consulting firm, James Kenney.
Some shareholders and creditors worry that an excessive payout could further weaken the struggling company. But others believe the two managers deserve a king-size bonus if they fix Merry-Go-Round.
Mr. Shull and Mr. Kenney have been running the fashion chain, which entered bankruptcy proceedings in January, for more than two weeks. But their employment contract, which must be approved by the U.S. Bankruptcy Court in Baltimore, is still on the bargaining table.
"We like the idea of bringing in people like Meridian to help the company turn itself around," said Wilbur Ross, senior managing director of Rothschild Inc., a New York investment firm that is advising Merry-Go-Round's shareholders in the bankruptcy. "We have some concerns over specifics of the terms of engagement and are in the process of proposing some alternatives to them."
Mr. Ross declined to specify his concerns. But people close to the company said major shareholders and creditors believe Meridian's proposed compensation has been excessive in at least some of the contracts being considered by Merry-Go-Round's board.
In one proposal, Meridian could earn a bonus of up to $10 million in stock and cash if the bankruptcy court determines that Merry-Go-Round's value has recovered to a certain level, two people close to the company said.
Merry-Go-Round officials strongly disagreed, saying a $10 million payoff would be extremely unlikely. "It's theoretically possible. But it is so unlikely that they would earn anything near that, that it's not really a consideration," said Roger Frankel, Merry-Go-Round's bankruptcy attorney. "These guys aren't going to make that kind of money in this deal."
Mr. Shull said the probability of Meridian's bonus reaching $10 million "is less than 2 percent. There's a very strong possibility there won't be any bonus. There's a possibility there'll be a bonus in the range of $2 million."
Under the contracts now being considered, Mr. Shull and Mr. Kenney together also would earn close to $100,000 a month in basic fees, people familiar with the company said. Another area of contention is proposed incentives for Meridian to speed Merry-Go-Round through bankruptcy court, sources said. Big creditors, especially Fidelity Investments, favor a quick reorganization. Shareholders prefer a longer process.
Mr. Shull was appointed Merry-Go-Round's acting chief executive officer last month, replacing co-founder Leonard "Boogie" Weinglass, who is still chairman. Mr. Kenney was named executive vice president and chief operating officer.
The men, who worked in the bankruptcy case of R. H. Macy & Co. until last summer, are acting as temporary "turnaround" managers. They're charged with reversing multimillion-dollar monthly losses at 1,200-store Merry-Go-Round and delivering it from bankruptcy.
The chain's problems, which have largely resisted attempted fixes this year by Mr. Weinglass and former President Michael Sullivan, have included picking the wrong fashions for its stores and a poor climate for apparel sales in general.
For February through September, Merry-Go-Round had a net loss of $67.2 million on sales of $494.5 million, and its net worth has declined from $198 million in January to $124.5 million on Oct. 1.
Mr. Shull said yesterday that holiday sales have been "disappointing." The company continues to adjust its merchandise mix, he said, testing "women's only" and "men's only" Merry-Go-Round stores in the same mall in several cases. Most stores operating under the Merry-Go-Round name will continue to carry clothes for both genders, but in some malls separating the apparel into two stores seems to make sense, he said.
Merry-Go-Round's Dejaiz chain is retreating from a failed attempt to sell dressier clothes, Mr. Shull said. And its Cignal chain, which had been run by Mr. Rodriguez, should be more profitable and will try to improve its men's lines, he said.
Cignal stores are now added to the oversight of Frank Tworecke, who was hired earlier this year to run the Merry-Go-Round division.
Turnaround contracts paying monthly or hourly compensation plus "success fees" of the kind being considered for Meridian "are not unusual, particularly in the larger companies, where public stock is involved," said Gary Brooks, of Allomet Partners Inc., a New York turnaround consulting firm.
But because of concern among investors and in Congress about professional compensation in bankruptcy cases, "courts have been reluctant to authorize rich success fees," said Chris Beard, who publishes Turnarounds & Workouts, a newsletter.
Two creditors said yesterday that Meridian should be expected to earn a multimillion-dollar bonus if it fixes Merry-Go-Round and boosts the assets available to be divided among creditors and shareholders.
"You have to assume that they are not there for charity and that they expect to make some money," said one apparel maker, who asked not to be identified.
Even if Meridian makes $10 million, "that's nothing," said Peter Chapman, president of Bankruptcy Creditors' Service, a Princeton, N.J., publisher that also has purchased Merry-Go-Round debt. "If they get the [operating costs] down by just 3 percentage points, that's a savings of $28 million a year. Certainly they're entitled to a third of that."