Spiegel Inc. is facing a new storm
Spiegel Inc. is facing a new storm to weather
Longtime retailer flirts with bankruptcy
By Lorene Yue Special to the Daily Press
March 16, 2003
CHICAGO -- In its rich history, Spiegel Inc. has weathered its share of adversity.
Since it began in 1865, the retailer has survived the great Chicago fire, two world wars and the Great Depression. It has grown beyond its catalog roots to include the Eddie Bauer retail chain, the Newport News catalog and a credit-card division.
Now the Downers Grove company is in trouble again, and executives have acknowledged a possible trip to bankruptcy court. The Securities and Exchange Commission has charged Spiegel with fraud for not filing its financial statements on time and withholding its concerns about being able to stay in business.
"Like a lot of retailers, we've had our ups and downs," said Debbie Koopman, Spiegel spokeswoman. "We've had a lot of volatility."
Now the question is whether the Michael Otto family of Germany, which owns all of Spiegel's voting stock, will lend more money to tide Spiegel over.
Spiegel's latest troubles came swiftly and on the heels of a celebration. Management trumpeted a turnaround at the end of 2000 that gave the company record sales of $3.7 billion and record profits of $827 million.
Over the next 12 months, the bottom dropped out. The economy slowed, terrorists attacked New York and Washington, D.C., and jittery consumers clamped down on spending. Meanwhile, Spiegel's Eddie Bauer division was having a hard time winning back shoppers who had soured on its merchandise.
On the Peninsula, Spiegel cut 100 of the 740 jobs at a Hampton call center that processes orders for the catalogs. A Spiegel warehouse in Newport News and call center had employed about 2,000 workers combined.
Further complicating matters, credit problems were growing at all Spiegel retail divisions. That forced Spiegel and Newport News to tighten their credit policies, which hurt sales.
Spiegel's credit cards play an integral part in generating sales.
In 2001, 41 percent of the company's annual sales were made with company-issued credit cards. Nearly 75 percent of sales from the Spiegel catalog and Spiegel stores are made on the retailer's credit cards.
By the end of 2001, Spiegel acknowledged it was in default on its loans.
Spiegel's banks shut off the credit line in February 2002, and federal banking regulators ordered Spiegel shortly after that to sell or liquidate its credit card portfolio because of sloppy recordkeeping.
Meanwhile, Spiegel was struggling to drum up sales.
"They just didn't evolve with the times," said Jill Wingenbach, who shopped Spiegel for at least 16 years.
Even Spiegel's Eddie Bauer division was having a hard time attracting shoppers. Sales at store open for at least a year, the traditional measure of a retailer's performance, began slipping in 1996 and have not recovered. "We moved away from our outdoor heritage, which is what Eddie Bauer was founded on and what it is grounded on," Koopman said.
Instead of the namesake outdoorsy-type offerings, shoppers found business casual clothing in candy-colored palettes in shades of kiwi green and electric orange. Eddie Bauer executives overcorrected for the glaring palette the following year and served up an apparel line that was too bland. By then, shoppers who had given the chain a second chance weren't willing to wait to see if the retailer would get it right the next time.
Spiegel officials have said they are not ready to shut the doors on a company that began as a downtown Chicago warehouse.
When Joseph Spiegel, a young German immigrant and Civil War veteran, set up shop on Wabash Avenue, he laid the foundation for what would become a giant in the mail-order business. Spiegel's catalog, dubbed the Big Book, debuted in 1905 and spread to 10 million families by 1926.
Retail consultants now question if a mail-order department store catalog is a dated business. "Big general-merchandise catalogs have become dinosaurs in the business," said Maxwell Sroge, a catalog consultant in Evanston. "The first one was Montgomery Ward, then Sears struggled and now JCPenney's and Spiegel are experiencing the same problem. The market is turning over to specialty catalogs."
Sroge and other analysts also question Spiegel's governing structure, which consists of board members who are either company executives or officers or retirees of the Otto Versand empire in Germany.
"They have people from Germany running an American fashion company, " Sroge said.
Koopman said the German-based directors visit the company, but declined to provide specifics on how often they meet or the last time they were at the U.S. operations.
Spiegel officials are now trying to line up new financing and talking with the Otto family for another infusion.
"We're examining a full range of strategic options," said Koopman. "And we are having ongoing discussions with our majority shareholder for financing."
Among the solutions: hiring a turnaround firm. William Kosturos, of the restructuring firm Alvarez & Marsal, was named Spiegel's chief restructuring officer and interim chief executive. He replaces Martin Zaepfel, who was dispatched from Germany in July 2001 to be Spiegel's leader, only to retire after 21 months.
Kosturos' job-stop the financial hemorrhaging, find more money to keep the company going and keep creditors from demanding immediate payment of Spiegel's $1.3 billion in debt.
"You've got to stop the drain," said Ryan Esko, a senior associate at AlixPartners, a turnaround and crisis management firm in Chicago. "There's a decision that has to be made in whether or not you need
to exit unprofitable lines of business to save the core business."
Copyright © 2003, Daily Press
Spiegel Inc. is facing a new storm
Good. I wrote this company a year ago and told them their continued abuse of customers would eventually lead to their own downfall much like fingerhut. In their arrogance they thought customers rights did not much matter. Burn baby burn.