NEW YORK -- GE Capital Corp. has finally pulled the plug on Wards.
The 128-year-old, 250-unit chain, once a giant among retailers, said Thursday that it would end operations and filed for Chapter 11 bankruptcy protection for the second time in three years.
The action, affecting some 28,000 employees, confirmed an exclusive WWD report on Wednesday that Wards would go out of business.
The dire news about Wards, along with recent disclosures that Bradlees was liquidating, Paul Harris is shutting some 40 stores, and that just about all of retail had a disappointing holiday season, from Gap to Wal-Mart to Neiman Marcus, compounds the bleak outlook for the industry.
According to analysts and retailers contacted this week, additional consolidations and difficult sales are expected at least through the first half of 2001, with the economy expected to continue to slow. Retailers are hoping that interest rates are cut soon to stimulate spending.
For a nation that's been long over-stored, the fallout could be healthy for the survivors in the long run and free up some talent, though it's certainly not for those losing jobs and money in the near term.
Wards, a fully owned, Chicago-based unit of GE Capital, said it would suspend further unpaid vendor deliveries and quickly eliminate about 450 corporate jobs. Most of the company's stores and 10 distribution centers in 30 states are seen closing over the next few months.
When reports of Wards imminent demise began circulating this week, industry sources expressed surprise that the chain lasted as long as it did. During the Eighties and Nineties, when it was known as Montgomery Ward, it got beaten down by rising competition with customers defecting to stores offering better values and stronger brands, such as Wal-Mart, Kmart, Sears and Target.
Its direction became uncertain, complicated by high management turnover and frustrations over declining performances. Wards first went into Chapter 11 in July 1997 and emerged from bankruptcy in August 1999.
"It was an irrelevant company," said Walter Loeb, of Loeb Associates. "There was no longer any reason for Wards to exist, except GE maintained the company because of the credit Wards extended to its customers."Sears has also made money on its credit operation, Loeb noted, but there are some big differences why Sears is still around and Wards is going down.
"Sears has at least a merchandise presence with some brands that customers still trust," Loeb said. "Many of Wards' competitors have much stronger merchandise presentations. Wards was no longer in a competitive position."
Isaac Lagnado, of Tactical Retail Solutions, said, "It's horrible to say, but this is something that was overdue. Wards was like a patient on the GE Capital respirator for the past few years. Wards has been an outmoded concept. The locations are mediocre and management never came to grips with the fundamental strategic impasse.
"To be a middle-price national chain, in a sector where even some better operators like Penney's, Mervyn's and Sears are struggling with better locations, better merchandising and systems. It was just not sustainable. Wards was a perpetual also ran. There was no price story and no fashion story, certainly not compared to Kohl's or Target."
Reportedly, the chain's chairman and chief executive officer, Roger Goddu, told his closest employees on Wednesday about the bad news, though meetings at various company locations were held to let workers know.
On Thursday, Goddu issued the following statement: "Today's filing comes after an exhaustive exploration of options for continuing the business. Overall weak holiday sales and a very difficult retail environment simply did not permit us to complete the turnaround that might have been possible in an otherwise thriving economy.
"Sadly, today's action in unavoidable. Since 1997, we have worked hard to restore Wards to a viable and profitable retail company. Although our remodeled stores continue to produce positive sales trends, we have not delivered the necessary financial result to warrant completion of our total company turnaround strategy."
GE took over full ownership through the Chapter 11 restructuring, and continued to pour money into the business, helping to fund an ambitious renovation project at stores around the country. That strategy did give some hope. Roughly one third of the $3.2 billion chain was renovated, and the new look, featured a brighter format that is easier to shop, with wider aisles, improved lighting, rolling fixtures to maximize displays, wood trims, chrome fixturing, sight lines to see across more categories, and new graphics to highlight the merchandise.The new store model averaged about 95,000 square feet and was configured in a racetrack design. It spotlighted women's fashions in the center of the store, while fashion accessories and fine jewelry anchored the main entrances.
There was also a stronger focus on key items, an attempt to bring in fresher brands, and the company even earlier dropped the Montgomery moniker from its store name to try to project a younger image. The new-store design cost Wards about $1.5 million per unit to implement and newly constructed stores would have cost at least $15 million.
Nevertheless, the weak holiday 2000 season was apparently the final blow for Wards, and GE Capital, tired of eating losses for years, cut off the financial life support it had given to the ailing retailer. The bankruptcy court papers were not immediately available.
Vendors and members of the financial community had expected the company to make an announcement about its future for about a week, after the company had stopped making payments to some vendors and had told others that it could accept deliveries only up through Christmas, according to financial sources.
Thursday's filing also could freeze a deal that had been in the works for a Montgomery Ward building in Fort Worth, Tex., which would be more bad news for creditors. According to a source, a Maryland group that had redeveloped a former Wards catalog complex in Baltimore was interested in doing the same for the Fort Worth site.
The site at West Seventh Street used to house a Wards catalog and distribution center.
A store is also located at the site. Except for the store, the site has been largely vacant since 1986, when Wards chose to close its catalog division.
As part of the bankruptcy restructuring, GE Capital also acquired the Signature Group, the direct marketing arm of Wards that was not part of Wards' Chapter 11 case. GE Capital obtained the rights to all the equity in the reorganized retailer in exchange for its claims against Wards. GE was Wards' largest creditor and provided the retailer with debtor-in-possession financing.
As reported, unsecured creditors received about 28 cents on the dollar in cash in the first bankruptcy action. It was too soon to tell the extent of the possible recovery of GE and unsecured creditors in this latest bankruptcy.A financial source said Thursday that GE acquired the chain in hopes of turning it around to sell. GE also has been operating Wards' credit card business, which was profitable at the time the company emerged in August 1999.
Executives at Wards could not be reached for additional information.
Wards was founded in 1872 in Chicago by Aaron Montgomery Ward as a mail order catalog business, issuing a single sheet of dry-good items for sale.
It was a pioneering effort, as the first U.S. mail-order house to sell general merchandise. Sears, Roebuck & Co. wasn't founded until 1886 and did not put out its first general merchandise catalog until a decade after that.
In 1926, Montgomery Ward opened its first retail store in Plymouth, Ind.