NEW YORK -- Woodward & Lothrop, the department store chain that has been a Washington, D.C., institution for 113 years, is reportedly on the brink of bankruptcy.
Trade sources said Wednesday the retailer has lined up $100 million in Chapter 11 financing from CIT Group after funding was cut off from W&L's parent, Taubman Holdings Co., which is controlled by A. Alfred Taubman. Taubman also owns Sotheby's and sits on the R.H. Macy board.
Calls to Taubman were referred to W&L, where a spokeswoman flatly denied the reports of an impending Chapter 11 and the financing and said she knew nothing about Taubman pulling the plug.
Taubman, who has repeatedly bailed out the troubled chain, is not expected to make a $50 million injection of capital that had been scheduled for this Saturday. He has reportedly stopped financing the retailer after having funded over $100 million in losses in the past three years alone. Sources said the chain lost $42.2 million in the first half of 1993, against a $30 million deficit in the comparable period a year earlier. Sales in the half rose to $366.9 million from $364 million.
In 1992, W&L lost $39.5 million on sales of $855 million; a year earlier, it lost $43.5 million on sales of $838 million.
The company operates 35 department stores: 19 Woodward & Lothrop units and 16 John Wanamaker locations.
W&L was acquired by Taubman in a $218 million leveraged buyout in 1984. Two years later, the chain acquired Wanamaker's from Carter Hawley Hale Stores for $180 million.
"That's probably the straw that broke the camel's back, as far as taking on too much debt," said a credit source.
In 1988, Taubman Investment Co. said it wanted to sell the beleaguered company, but it was unsuccessful and subsequently took it off the market.
W&L is currently in the midst of the annual cleanup period of its $135 million bank line from Chemical Bank, in which the chain has to pay off all its bank borrowings. During this period -- Jan. 1-15 -- it is not able to draw any new bank funds.Although the chain has an additional $170 million line from Taubman, it has had trouble keeping down its bank borrowings and, as a result, has failed to make about half of the vendor payments that were supposed to go out Dec. 10. Credit sources do not expect Jan. 10 payments to go out before the end of the cleanup period, if at all.
Sources added that most larger factors are holding cash deposits from Woodward's to cover new shipments. They also said W&L has $40 million in principal payments due on its loans next year.
Said one credit analyst, "They did a lot of remodeling of stores, but sales continue to be mediocre. They have too much debt to service."
As reported, W&L recently concluded a $200 million five-year renovation program, which included a major remodeling of the John Wanamaker flagship in downtown Philadelphia. The much ballyhooed plan aimed to turn around years of depressed sales and market share erosion. It encompassed more sophisticated operating systems and a more focused merchandising strategy that targeted the upper-moderate to better market, with a smattering of designer lines.
In a 1992 interview, Arnold Aronson, chairman and chief executive officer said: "We are trying to reestablish ourselves in Washington."
But others in the industry said the sweeping revival tactics came too late. For years, Woodward & Lothrop had a foothold in the middle-to-upper-income market. Its other home-grown competitor, Hecht & Co., a division of May Department Store Co., aimed for the lower-to-middle-income market.
That position changed in the late 1970s, with the invasion of Bloomingdale's, and was jolted in the mid-Eighties with the arrival of Macy's and Nordstrom.
With the advent of new competition, W&L went more upscale, but reversed that strategy only a year later when its move into designer merchandise failed. The shifts in focus, said its critics, cost the store market share.
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