Woodies weighs buyout proposals


The names Woodward and Lothrop have graced dry goods emporiums for more than 100 years. Whether they will continue to do so is uncertain.

Woodward & Lothrop Holdings is on the bidding block. As a result of its continuing bankruptcy process, the Alexandria, Va.-based department store chain is considering buyout proposals or other offers from outside investors.

Chairman and CEO Robert B. Mang said last week that Woodies has received "viable interest" from four potential partners. Some are other retailers, he said. Some are financial players.

He declined to reveal their identities. But industry speculation is focused on Federated Department Stores and J.C. Penney Co. as two possible buyers.

Federated, said people familiar with Woodies, may want to buy the chain's Washington- and Baltimore-area venues and turn most of them into R.H. Macy department stores.

Penney is said to be considering at least some of Woodies' 14 John Wanamaker department stores in the Philadelphia area as well as some of the 15 Woodward & Lothrop department stores in Baltimore-Washington. Penney, too, would put its name on the buildings and its own merchandise mix inside.

Spokespeople for Penney and Federated declined to comment.

Woodies isn't ready yet to sell itself or retire its name. Soliciting outside investors is a typical part of a Chapter 11 reorganization process, one that doesn't always yield deals.

Even if offers surfaced, creditors might prefer Woodies' own reorganization scheme, which would keep the chain independent. A new owner might keep the venerable Woodies name and identity.

"We still think, based on the knowledge we have today, that the best thing for creditors is the company plan," Mr. Mang said.

But interviews with other retailers and financial analysts suggest that, whatever happens in the reorganization, an independent Woodies would face imposing challenges. The trend in department chains is big and bigger, as Federated's recent swallowing of Macy shows.

Like herding elephants, department stores increasingly are seeking safety in large numbers from predator discounters and specialty chains.

Megachains not only give department stores well-known economies of size in buying power and operating costs. They also give stores the stature to set up sophisticated, computer-based, reordering systems with suppliers, ensuring stock in popular items and paring expensive inventories, said Salomon Bros. bond analyst Rosemary Sisson.

Industry experts don't rule out a freestanding Woodies.

"They can stay independent if they can sustain and build customer loyalty," said Terrence Foran, chairman of LakeWest Group, a retail consultancy based in Cleveland. "People like Nordstrom's, that aren't enormous chains, have provided services and products in different areas that make them unique and build loyalty."

Indeed, one creditor representative expressed optimism about Woodies' standalone strategy, which would shed four stores, boost home merchandise and aim at younger customers.

"I think they've got the right business plan, and if they can implement it, there's no reason why it can't be a decent company," said the creditor representative, who spoke on condition of anonymity. "I think regional chains can compete."

But several industry sources believe the odds are against it.

"Slim and none" are the chances that Woodies will stay independent, said Peter Schaeffer, a financial analyst with Dillon Read & Co. in New York. He doesn't think the name will last much longer, either.

Even Chairman Mr. Mang said that swimming with the mega-operators is Woodies' "biggest challenge."

"How do you compete with these big, national chains who have the consolidations and economies of scale?" he added. "You have to focus on their rigidities. We have to be faster. We have to distinguish our inventories from them. We have to be much closer to the consumer."

Of the 15 regional Woodies stores, three are in the Baltimore area: at White Marsh Mall in Baltimore County; the Mall in Columbia and Parole Plaza near Annapolis.

Nine days ago, Woodies announced it would try to sell Woodies stores in Seven Corners Center in Falls Church, Va.; Prince George's Plaza in Hyattsville; and Landover Mall in Landover.

Woodies also has three home furnishing stores in Virginia and one in Bethesda. Its business plan calls for four new home furnishing stores, including two in the Baltimore area, and one new department store each in Virginia and Pennsylvania.

The company last summer signed a five-year lease on a 295,000-square-foot distribution warehouse expected to employ 200 in South Baltimore. It's unclear what would happen to that facility if Woodies is merged with another retailer.

"It would depend on who the strategic acquirer was," Mr. Mang said. "I would think there is a compelling case to use this brand new, state-of-the-art facility."

Woodies has floundered since A. Alfred Taubman bought the chain in a $230 million leveraged buyout in 1984 and spent $183 million more to add the Wanamaker stores in 1988.

The company struggled under heavy interest payments, even though Mr. Taubman invested an additional $200 million to upgrade old stores and open new ones. And it lost touch with customers, allowing rival Hecht's to steal market share in Baltimore and Washington.

Woodies' January 1994 bankruptcy filing was an attempt to shuck debt and refocus its strategy while staying in business. Among the initiatives: cutting more than 10 percent in annual costs by the end of 1995 by merging warehouses, eliminating management layers and renegotiating a union contract.

Sales last year fell by about 1 percent, "better than any other department store company in its first year in Chapter 11," Mr. Mang said.

January results aren't available yet, but for the 11 months that ended Dec. 31, Woodies' operating cash flow was a positive $29.8 million on sales of $794.4 million. Its net loss for the period, which includes lawyers' fees, interest costs and depreciation, was $26.2 million.

Christmas sales were disappointing, falling by about 1.5 percent. But same-store sales rose by 20 percent in January and 5.5 percent in February, Mr. Mang said. Profits for the November-January period "will be double last year's," he said.

That's progress, but Woodies is still striving. Its annual average sales of less than $200 per square foot are far below those of industry hotshot Nordstrom, which rakes in close to $400 per square foot annually.

And it can't escape the issue of scale. The Macy merger gives Federated 355 department stores and roughly $14 billion in annual sales. By contrast, a reorganized Woodies would have 25 department stores and less than $800 million in sales.

The industry's centripetal force is so strong that in a few more years, analysts said, most U.S. department stores will be owned by Federated, Hecht's owner May Department Stores Co., Dillard Department Stores Inc. or a fourth giant assembled of remaining pieces.

The big players increasingly prefer to scrap hallowed department-store names and attach their own.

All of which makes people believe that Woodies could be buyout bait.

Several industry sources discounted Dillard as a suitor, saying the chain likes smaller markets and avoids bidding contests. Mr. Schaeffer doesn't believe Penney would buy the whole Woodies or Wanamaker chain, preferring instead to pick off individual stores. And people close to the case said an employee buyout proposed by Woodies' union is a long shot. But interest is still keen.

"Federated might do it," said Peter Chapman, who publishes the newsletter Woodward & Lothrop Bankruptcy News. Another possible suitor: Boscov's, a Reading, Pa.,-based chain. "Lots of folks," Mr. Chapman said, "are still kicking the tires."


* Founded: 1880

* Headquarters: Alexandria, Va.

* Bankruptcy filing: 1/17/94

* Assets: $732 million

* Liabilities: $866 million

* Annual sales: $835 million*

* Employees: 11,000

* Stores: 15 Woodward & Lothrop department stores, 14 John Wanamaker department stores, 4 home furnishing stores

* approximate

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