Can These Guys Revive Macy's?

Mark S. Handler, Macy's new co-chairman and CEO, looks a lot like his former boss, Edward S. Finkelstein. Like Finkelstein, Handler is partial to spread collars, custom suits, and aviator glasses. Handler, who in high school briefly considered a career as a comedian, now speaks in Finkelstein's measured tones, too.

But Handler would do well to distinguish himself from his old buddy and longtime mentor. After months of rumors that R.H. Macy & Co.'s board wanted Finkelstein out, the embattled CEO resigned on Apr. 25. Now, it's up to Handler and his co-CEO, Myron E. "Mike" Ullman III, to chart a new course for the retail giant, which has been in a Chapter 11 reorganization since January.

The two men know better than almost anyone how difficult that task will be. Clearly, they have not yet settled into their new roles. Standing just a few feet away from Finkelstein's darkened office, still decorated with pictures of the former CEO's family, Ullman and Handler stiffly pose for a photographer, then remove their jackets and settle at one end of the long wooden table that dominates Macy's boardroom.

LESS SCREAMING? They acknowledge that their two-man approach is unusual. Says Handler: "This partnership may not be made in heaven, but we think it would work very well. The lines of responsibility are relatively clear and delineated." But if there is to be a first among equals, it may be Ullman. It's he who led a discussion of where Macy's is headed, and he's eager to talk about the consumer focus groups the store has been conducting. Macy's, it seems, is not a browser's store. "Sixty-five percent of people surveyed say they come to the store because they need something," says Ullman, regardless of whether there's a sale on. That finding could result in a change of strategy, since Macy's has been running a different promotion almost every week lately. "Perhaps we'll scream less: 'Sale, sale, sale!' " says Ullman.

That's not the only merchandising strategy subject to revision. "There will have to be reshaping of where they want to go," says Leonard Lauder, CEO of Estee Lauder Inc., a large Macy creditor. "Do they want to be an upmarket department store, or do they want to go back to the old Macy's: 'Pile it high and let it fly!' "

The old Macy's also emphasized well-known, national brands. By contrast, Finkelstein plunged deeply into private-label goods--which now make up 15% to 20% of Macy's merchandise--in departments from housewares to men's shoes. Ullman and Handler are reexamining that approach. Although it has had some success, there may just be too much private-label merchandise in the mix, suggests Lauder. "Probably the most immediate change you'll see is more emphasis on branded goods."

`MAKES SENSE.' Even bigger changes may be ahead on the financial side, perhaps as early as this summer. Although board members aren't talking, one Wall Street theory has it that those directors who hold preferred stock--Hong Kong investor Sir Run Run Shaw, CBS Chairman Laurence A. Tisch, mutual-fund manager Michael F. Price, developer Alfred Taubman, and General Electric Capital--could buy up Macy's bonds in the open market after prices start to fall, then negotiate for ownership. "They'll wait until people start to take Macy's off their radar screens," says Jack Hersch, a bankruptcy analyst at Lehman Brothers. Or, he suggests, preferred shareholders may inject money directly into Macy's to help cut its $5.1 billion debt. In exchange, they'd ask for a controlling equity stake.

Another alternative could involve Zell/Chilmark Partners, whose debt holdings give it effective control of Carter Hawley Hale Stores Inc., also in bankruptcy proceedings. Chicago moneyman Sam Zell may be interested in buying Macy's California chains, I. Magnin Inc. and Bullock's Inc., and merging them into Carter Hawley. Zell and David Schulte, Chilmark's lead partner, didn't return calls, and Ullman and Handler deny that such asset sales are in their five-year plan. Still, "the Zell idea makes sense," says a board adviser. "But just because it makes sense doesn't mean it's going to happen."

Macy's board and creditors are waiting none too patiently for the retailer's luck to turn. Ullman and Handler know that if they don't want to share Finkelstein's fate, they had better start making sense fast.

      Despite management's denials, I. Magnin and Bullock's could be sold to a 
      California retailer, such as Carter Hawley Hale
      Some 10% of Macy's 120 stores could be shuttered
      Similar to Nordstrom's 'Rack' outlets, these stores are posting encouraging 
      Retailing insiders speculate that Macy's may return to its roots as a bargain 
      emporium. And the store's new management is reexamining its private-label 
      DATA: BW
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