From: Rohit Khare (Rohit@KnowNow.com)
Date: Fri Dec 29 2000 - 04:55:20 PST
Wow. Compare the 28,000 associate job losses for Wards' with the
*total* 31,000 or so .com/Internet industry job losses. Nice of
Neutron Jack to save the news for New Year's Eve... Rohit
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December 29, 2000
Montgomery Ward to Close Its Doors
By LESLIE KAUFMAN with CLAUDIA H. DEUTSCH
Montgomery Ward & Company, once the greatest American retailer and
the pioneer of many sales practices that became widely accepted, said
yesterday that it would go out of business after 128 years.
The company, owned by General Electric, said it would close its 250
stores and dismiss the 28,000 associates who run them in the coming
months. It filed for Chapter 11 bankruptcy court protection yesterday
for a second and final time and eliminated 450 national jobs
immediately. The company is based in Chicago and now operates in 30
states. The stores closest to New York City are in Poughkeepsie and
Kingston.
Ward said the disappointing holiday season was the final straw.
"Sadly, today's action is unavoidable," said Roger Goddu, chairman
and chief executive, in a statement. "Overall weak holiday sales and
a very difficult retail environment simply did not permit us to
complete the turnaround that might have been possible in an otherwise
thriving economy."
But whatever the immediate reason, Ward's demise was long in the
cards. Retail historians date the start of the decline to the postwar
boom of the 1950's, when its rival, Sears, Roebuck & Company, moved
aggressively into the then nascent suburbs, while Ward, under the
steely leadership of its then chief executive, Sewell Avery, hoarded
cash and waited for a second Great Depression.
"It has been a slow-motion train wreck," said Sid Doolittle, a
Chicago based-retail consultant who was an executive with the company
for 28 years.
In 1872 Aaron Montgomery Ward, a traveling dry goods salesman,
started selling to farmers by mail through a one-page catalog list.
By inventing the general merchandise mail-order catalog, Mr. Ward
could keep prices low through bypassing the middlemen, like
small-town shopkeepers and itinerant salesmen. Sears was not founded
until 14 years later and its catalog came years later still.
In 1875 Mr. Ward pioneered another practice now taken for granted -
"satisfaction guaranteed or your money back."
A decade later, Ward's book was 240 pages and the shopper's bible for
America's rural folk. The company went public in 1919 and began
opening its own stores in the next decade.
As the company grew into one of the biggest retailers in the country,
its colorful history became intertwined with the nation's own.
It was a Ward advertising writer who in 1939 wrote "Rudolph the Red-
Nosed Reindeer" as an illustrated poem to hand out to children
visiting Ward's Santa for Christmas.
In 1944, Mr. Avery, the chief executive who would run the company as
it lost out to Sears in the 1950's, defied the War Labor Board's
attempts to force recognition of a union. President Franklin D.
Roosevelt ordered that he be seized. Many newspapers published a
front-page picture of the unflappable Mr. Avery, his impeccable
double-breasted suit and pocket handkerchief unmussed, being carried
out of his store by two soldiers.
But Mr. Avery and his company were at their height. It was a perch
soon to be lost, however. Mr. Avery had saved Ward in the 1930's from
bankruptcy by foreseeing the Great Depression and halting expansion
and hoarding cash. He repeated this formula after the war, but this
time Sears got it right by spending heavily to be the first to serve
consumers in the suburbs blossoming across the nation.
Ward eventually caught on and tried to move to the suburbs, too, but
by then Sears was already well ensconced in important malls in good
locations at intersections of the emerging interstate highway system.
Ward could never catch up.
In an attempt to diversify its assets, Mobil Oil bought 54 percent of
the wounded company in 1974 and then the rest two years later. Mobil
invested a lot of money, but the company's struggles continued. In
1985 it shut down the catalog business that had made its fame.
Three years later, struggling to free itself from Mobil, Ward instead
set the stage for another bout of corporate ownership. GE Capital and
Kidder Peabody, then a G.E. subsidiary, helped arrange and finance a
$3.8 billion management-led buyout of Montgomery Ward in 1988. GE
Capital retained a 50 percent stake in the retailer.
Faced with tough new discount competitors like Target and Wal- Mart,
the business continued to flounder and filed for bankruptcy in 1997.
By that time, GE Capital had invested $180 million in Montgomery Ward
and lent it far more than that. As part of the bankruptcy
reorganization, General Electric helped to recapitalize the company,
and wound up owning it.
In the years since, General Electric brought in new management and
invested heavily in modernizing the stores, but nothing seemed to
pump up sales or profits. Several analysts recalled a mid-December
meeting with General Electric's chairman, John F. Welch Jr., and
Dennis D. Dammerman, chairman of GE Capital Services, at which the
two executives acknowledged that Montgomery Ward would lose $227
million after taxes this year. "They cited it as one of a number of
situations where they were contemplating taking actions to reduce
losses going forward," said Martin A. Sankey, who follows the company
for Goldman, Sachs.
General Electric was never particularly enthusiastic about the retail
business and, considering the losses, yesterday's announcement did
not surprise analysts.
The timing of the Montgomery Ward closing probably had as much to do
with taxes and the reporting of earnings as with stanching the
losses. General Electric reaped $1.4 billion earlier this year from
the sale of its stake in PaineWebber, and that gain will probably be
used to offset charges associated with the closing of Montgomery Ward.
"The result is that there would be no net impact on earnings from the
closure," Mr. Sankey said. G.E. put out a statement confirming that
there would be no impact on earnings.
The rough holiday season has already claimed other casualties.
Bradlees, a discount chain in the Northeast, said earlier this week
that it was going out of business.
Copyright 2000 The New York Times Company
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