How Greed, Ambition, and Folly Ruined America's Greatest Store
By Jeffrey A. Trachtenberg
Times Business 274pp $27.50

In the fall of 1990, amid a torrent of rumors that retailer R.H. Macy & Co. would soon file for bankruptcy protection, I went to interview company Chairman Edward S. Finkelstein. It was four years since Macy's had gone private, and now it was reporting losses in the hundreds of millions. Both Wall Street and Seventh Avenue were wondering how--and if--the company was going to meet interest payments on its multibillion-dollar debt load.

For 20 minutes, I waited outside Finkelstein's $50,000 bulletproof office doors. When I got inside, the interview proved a disaster, prompting one of Finkelstein's renowned temper tantrums. ''What do you know about Macy's?'' he demanded. ''Just what you've read?'' He denied any problems and bellowed insults while three lieutenants sat in silence, averting their eyes.

But not even such virtuoso verbal pummeling could stave off the creditors. A year and a half later, Macy's was in bankruptcy court, and Finkelstein was out of a job. It was a classic story of pride and fall, now described in riveting detail in Wall Street Journal reporter Jeffrey A. Trachtenberg's new book, The Rain on Macy's Parade.

A feisty graduate of Harvard business school ''who retained the subtle menace of a schoolyard athlete,'' Finkelstein joined Macy's training squad in 1948 and quickly rose to become fabrics-department manager in the company's flagship Manhattan store. By 1969, he was president of Macy's California, where within 12 months he more than doubled the division's pretax profits by catering to upscale customers. In 1973, Donald Smiley, then Macy's chairman, brought Finkelstein back to New York to apply his magic to the Herald Square emporium. Over the years, Trachtenberg relates, Finkelstein transformed Macy's from an oversized variety store into a glamorous chain and made shopping an adventure. In 1980, Macy's board elected him chairman.

Toward his 55,000 workers, Finkelstein played the generous, albeit mercurial and often dictatorial, patriarch. He nurtured scores of employees and rewarded his staff handsomely. The trade-off was putting up with Finkelstein's dark side: He never let executives forget who was boss. During weekly meetings, he would often ''scream, demand, and belittle,'' Trachtenberg reports, enjoying it when his staff turned on each other because ''this meant they cared.'' Every Monday morning, on returning from his Connecticut weekend retreat, Finkelstein would hand out gifts to a favored few--eggs laid by his hens. Recalled one executive: ''If you never got eggs, you started to worry.''

For six years, Finkelstein himself had few worries, traveling in a chauffeured Mercedes and living the high life. Then, in the summer of 1985, convinced that a leveraged buyout would make millions for him and several hundred top managers, he decided to take Macy's private. The board, initially resistant, acquiesced, as they had with most of Finkelstein's demands. It was the '80s, and merger fever was rampant. Two of Macy's rivals, Federated Department Stores Inc. and Allied Stores, had been taken private by Canadian real estate developer Robert Campeau, and Finkelstein decided that if Campeau could do it, he could, too.

True to form, Finkelstein celebrated the LBO by hosting an elaborate black-tie party at the Metropolitan Museum of Art's Temple of Dendur in July, 1986. But the champagne had hardly been finished before things started going wrong. It soon became clear that investment bankers' projections of future cash flow--the money needed to service the LBO debt--had been too optimistic. And with the economy sagging into recession, two Christmas shopping seasons in a row proved disastrous. In November, 1988, Macy's reported that it had lost $188 million for the year ended in July, more than 13 times what it had lost a year earlier. The company began to close stores and lay off employees, with Finkelstein insisting all the while that Macy's would rebound.

But there would be no miracles on 34th Street. In early 1992, the once-great retailer stumbled into bankruptcy court. ''Every cent invested by Macy's more than 400 managers was wiped out,'' writes Trachtenberg, whose description of the days leading up to the company's bankruptcy filing is fast-paced and absorbing.

Trachtenberg places the failure of Macy's squarely on Finkelstein's shoulders---the chairman, he argues, lacked critical financial acumen. Rather than listen to anyone who didn't share his misplaced enthusiasm, Trachtenberg says, Finkelstein just bellowed at them. Nor would the chairman assume any responsibility for Macy's downfall. ''His take on the bankruptcy was that it was somebody else's fault; an act of God; a conspiracy; the recession,'' notes Robert Miller, a lawyer for Macy's bondholders.

That was hardly the case. Macy's fate began and ended with Ed Finkelstein. But the story has a relatively happy ending: Macy's is now a division of Federated, which bought it in 1994. Trachtenberg reports that friends of Finkelstein--who has hung out his shingle as a retailing consultant--say he has mellowed. He's not likely to relish his portrayal in The Rain on Macy's Parade. No matter. Readers will find the saga fascinating.

By Laura Zinn


Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.
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