Embattled F&N Sees Hope Despite Closures, Layoffs

Sep 18, 1991

Robin Updike, Himanee Gupta, Byron Acohido

Frederick & Nelson hopes its Chapter 11 bankruptcy filing could be the beginning of Chapter 1 in the retailer's struggle for a comeback.

Retailing industry experts, however, wonder if efforts to turn

what was once Washington's most prestigious retailer into a leaner but again glamorous and profitable operation may have come too late.

Following months of unpaid bills to suppliers, increasingly bare sales floors, unsuccessful attempts to find investors, liquidation-style sales and a lawsuit by the state to collect $2 million in back taxes, Frederick & Nelson yesterday said it will slash the size of the company in half - from 10 down to five stores - and reduce its work force by one-fourth - 500 out of 2,000.

In exchange, its largest creditor, Citibank, will add $19 million in credit to a $42.5 million debt it is already carrying to help F&N finance new inventory for the upcoming Christmas shopping season.

Industry analysts say that shedding the five worst performers among F&N's 10 Washington stores is a necessary move.

"It's the only chance they have," said Kemper Freeman, whose company owns and operates Bellevue Square, where Frederick's will keep its store. "As painful as it is for them, I wish they would have done it a year ago."

The 101-year-old retailer said it is selling its Tacoma, Everett and Olympia locations to Mervyn's discount department store chain of Hayward, Calif., for $11.5 million, and will close its Lakewood Mall and Aurora Village stores. The remaining locations will be in downtown Seattle, Bellevue Square, Southcenter, downtown Spokane and at Northtown Mall in suburban Spokane.

The five stores slated for closure will operate through this Sunday, with their merchandise sold at discount, said David Fisher, F&N spokesman.

Some 500 of the chain's 2,000 employees will lose their jobs because of the closures. Fisher said some will be offered new positions within the company, and others will be encouraged to apply for jobs at the Mervyn's stores, which will likely open sometime next year.

Many businesses end up better off in Chapter 11, and retailing industry sources say this could happen in Frederick's case. Chapter 11 allows a company to work out a new plan for staying in business without immediately having to pay off creditors. Except for those already owed large amounts of money, suppliers generally are reassured when a financially troubled retailer files for Chapter 11, since it means that future bills will be paid in a timely fashion.

"I don't think that what they've done is all that bad a move in terms of allowing them to become viable," said Jeff Atkin, partner in Kunath Karren Rinne & Atkin, a Seattle investment firm. "I won't sit here and tell you that they're out of the woods yet or that this will make them prosperous, but it gives them a chance to make some money and get out of Chapter 11."

Atkin and others point out that saving F&N, which was purchased by real-estate developer David Sabey in 1989, is an especially challenging task since it comes at a time when retailing is in a slump nationwide and major department-store chains nationwide - including Allied, owner of The Bon Marche, Federated and Carter Hawley Hale - are operating under Chapter 11 reorganization plans.

Much of what happens in the future hangs on Sabey's own ability to muster the financial strength to pull off the restructuring. Sabey, who places the value of his developments at around $320 million, is known for putting together business deals like so many pieces in a complex jigsaw puzzles.

"He's a deal maker, and the way he puts deals together is to make everybody happy enough to where the deal he is offering works better than no deal at all," said Joe Peterson, president of Local 1001 of the United Food & Commercial Workers union, which represents F&N sales clerks and office workers in King County.

Many of Frederick's largest creditors were suppliers of hard goods the retailer had said it would begin to phase out. Sealy Mattress Co. of Portland, for instance, was owed $300,000; Alexvale Furniture Inc., Taylorsville, N.C., was owed $85,000 and Soomekh Oriental Rugs, Los Angeles, was owed $172,000.

The largest unsecured creditor is former F&N president G. Arthur Henkens, who is owed $4.6 million. Sabey bought out Henkens' interest in the chain in 1989.

Also on the list of top unsecured creditors are cosmetics companies, such as Revlon and Calvin Klein Cosmetics, and the Seattle-based clothing manufacturer Generra Sportswear.

-- Times business reporters Himanee Gupta and Byron Acohido contributed to this report.

A LIST OF FREDERICK & NELSON'S SECURED, UNSECURED CREDITORS

Here is the list of Frederick & Nelson's top secured creditors (whose debt is secured by the company's assets) and unsecured creditors named in court papers filed yesterday. F&N listed its assets at $225 million and its liabilities at $214 million. Included in firm's liabilities, but not listed, is the state Department of Revenue, which is owed about $2 million in taxes.

LARGEST SECURED CREDITORS:

1. Citibank ($42,500,000) . 2. US WEST Financial Services ($25,000,000) . 3. PLC Leasing Corp. ($20,000,000) . 4. Xerox Credit Corp. ($18,000,000) . 5. SAFECO Life Insurance Corp. ($5,000,000) . 6. Xerox Financial Services ($3,000,000) .

LARGEST UNSECURED CREDITORS:

1. G. Arthur Henkens ($4,600,000) . 2. R.K. Gittelman's Sons of Michigan ($400,000) . 3. Finlay Fine Jewelry Corp. ($363,000) . 4. Sealy Mattress Co. ($300,000) . 5. Northwest Web ($225,000) . 6. Soomekh Oriental Rugs ($172,000) . 7. Crystal Brands ($168,000) . 8. The Seattle Times ($150,000) . 9. Calvin Klein Cosmetics Inc. ($122,000) . 10. Marx & Newman ($120,000) .