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The Wrong Way To Hit The Big Time


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THE WRONG WAY TO HIT THE BIG TIME

As chairman of Milwaukee-based P. A. Bergner & Co., Alan R. Anderson ran a string of department stores in small and medium-size towns across the Midwest. But by 1989, after 30 years in retailing, the executive who had once studied for the ministry was aching to break into the big time. Bergner's parent Maus Freres, already a retail giant in Europe, also harbored ambitions to grow in the U. S. So Anderson set his sights on Carson Pirie Scott & Co., the second-biggest department-store chain in Chicago. So eager was Bergner that, although the move boosted the company's debt by $753 million, it agreed to buy the troubled retailer without a traditional due-diligence examination of the business' finances.

Some boo-boo. And Anderson, 56, may have paid for it in April when he abruptly retired. The company says he left voluntarily, but now Maus is paying for the error, too: Bergner sought bankruptcy protection on Aug. 23. Says James J. Rice, a credit manager for Bernard Sands Credit Consultants Inc.: "Their problems began with the Carson acquisition. Now, the whole thing has fallen apart."Bergner executives argue that they've bought breathing room and say that the company's biggest trouble is the heavy debt load--not a fundamental weakness in operations. If the court grants Bergner temporary relief from making interest payments, it will be in a better position to pay for goods entering the crucial fall season, they say. "It's business as usual," says Edward P. Carroll Jr., Bergner's senior vice-president for marketing. He adds that plans to open a new Carson's in Chicago's mammoth Merchandise Mart this fall are still on.

But Carroll may be underestimating the blow bankruptcy can deal to operations. "Bankruptcy is never business as usual," says Carl Steidtmann, chief economist at Management Horizons, a retail consulting group. Many suppliers are now refusing to ship goods until they are assured that Bergner has financing. Others are reassessing willingness to sell to Bergner at all, given its battered image. "Everything is in review," says John Fargnoli, director in the credit department at Estee Lauder Inc.

ON THE BLOCK. And goods that do get shipped may not be up to par. Says Sidney Doolittle, a retail strategist at McMillan & Doolittle Inc. in Chicago: "Good merchandise goes to the good, well-financed, healthy retailers. Not-so-good goes to the less financially healthy. It's going to be a hairy situation for the next six months or so."

Then again, some competitors say Bergner may be forced to sell some of its 69 stores. But in a market already glutted with assets for sale by other troubled retailers, such as Federated Department Stores and Carter Hawley Hale Stores, Bergner's stores aren't exactly hot properties. They aren't in ideal locations. Nor do they dominate their markets. Operating under the Bergner's, Boston Stores, and Carson Pirie Scott names, the stores aim at middle-market customers with household incomes of $35,000 to $75,000 a year--a focus that has put it in the No. 2 slot in many locations. "It's very difficult to be a weak No. 2 in any market," says Steidtmann.

That's a lesson Maus may have already learned. After pumping in an estimated $150 million in cash in April to keep Bergner afloat, Maus is believed by several industry executives to have tried selling it. Maus, they say, turned to Goldman, Sachs & Co. to shop its U. S. retailing subsidiary around--with little luck. Bergner's Carroll says it hired Goldman to advise on a financial restructuring, not to shop the stores.

Now, Maus which purchased the original Peoria-based Bergner chain in 1938, appears unwilling to invest any more in its U. S. subsidiary. In last-minute negotiations before the Chapter 11 filing, its major lenders, Swiss Bank Corp. and Union Bank of Switzerland, insisted that it inject more cash into the operation as a condition for long-term financing. Maus refused, some say. Now, rumors are flying that it may be forced to sell some of its 42% stake in French department-store chain Au Printemps. Maus now may wish Alan Anderson's ambitions--and its own--had been tempered with a bit more caution.

BERGNER'S OPERATIONS

P.A. Bergner & Co. Holding is the U.S. holding company for Geneva-based retailer Maus Freres. With 1990 sales of $1.2 billion, assets include:

P.A. BERGNER Operates 28 full-line department stores under the Bergner's and Boston Stores names and 41 under the Carson Pirie Scott name

CPS HOTEL MANAGEMENT SERVICES AND CPS REALTY PARTNERSHIP Own or manage office buildings, stores, hotels, restaurants, and warehouses

BERGNER CREDIT, a trader of accounts receivable generated by the use of private-label credit cards by the company's customers

DATA: COMPANY REPORTSJulia Flynn Siler in Chicago


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