Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser

Updated at 11:20 a.m., Tuesday, June 19, 2001

Liberty House sold, will become Macy's

Highlights of the deal

By Andrew Gomes
Advertiser Staff Writer

Ending about a week of speculation, Federated Department Stores Inc. announced this morning that it is buying Liberty House.

Advertiser library photo

Federated Department Stores Inc. announced today that it will buy Liberty House, Hawai'i's oldest and largest department store chain, and turn it into Macy's.

The acquisition, expected to be completed as early as July 9, includes the entire company and all assets — 11 department stores, seven resort and specialty stores in Hawai'i, and one department store in Guam.

All of the 152-year-old retailer's stores will become part of Federated's Macy's West division. The stores, which will retain the Liberty House name for the near-term, will ultimately be called Macy's.

Terms of the deal, including a purchase price, were not disclosed.

No stores, except a small specialty shop at the Marketplace on Kaua'i, will be closed. Three workers there will be offered jobs at the Kukui Grove store, said Macy's West chairman Jeremiah Sullivan.

The purchase comes less than four months after Liberty House emerged from Chapter 11 bankruptcy reorganization under the primary new ownership of two private Mainland investment firms.

"We are extremely pleased to bring Macy's to Hawai'i and the Pacific," said Sullivan. "Macy's believes in Hawai'i now and in the future and we are committed to investing in the islands. Liberty House has a long tradition in Hawaii and we are enthusiastic about building upon its history."

Macy's said it expects to keep most of the approximately 2,600 Liberty House store employees. Macy's said it will interview the almost 400 Liberty House central office employees to determine how they fit into Macy's in Hawaii.

Change comes after reorganization

Liberty House president John Monahan said today it was a bittersweet moment. He said he will stay with the retailer through the transition, but will not join Macy's.

Analysts have said such an aquisition of Liberty House was to be expected. Liberty House emerged from Chapter 11 earlier this year with more efficient operations, fewer stores, little debt and profits — four things analysts said made the company more attractive for acquisition.

During the past few years, Liberty House has cut its outlets from 41 to 20.

"Industry-wise this is inevitable," said Douglass Smoyer, president of Honolulu-based retail consulting firm Retail Strategies Inc. "It used to be that big is better. Now it's big is survival."

Federated operates 432 stores in 33 states under the Macy's, Bloomingdale's, The Bon Marché, Rich's, Burdines, Lazarus and Goldsmith's names.

Could be step towards Asia

The purchase of Liberty House would give the company several prime shopping mall locations with little core competition, as well as serve as a stepping stone for a possible Federated expansion to Asia.

Kurt Barnard, a New Jersey-based retail analyst, said Macy's is a "middle-of-the-road" department store with good quality, competitive prices and an extensive assortment of merchandise.

"I think the community is likely to benefit very much," he said. "It is a store that has most everything for most everybody."

Barnard describes Macy's as a step below Neiman Marcus on merchandise exclusivity and pricing, but superior to J.C. Penney.

Local industry observers say Macy's is close to Liberty House in merchandise and selling style. But how much of Liberty House's local flavor Federated retains remains to be seen.

In the past couple of years, Liberty House has intensified its business with local vendors and promoted Hawai'i-made merchandise tailored to Island lifestyles.

Hundreds of local vendors supply Liberty House, as do numerous Mainland suppliers, including Federated, which has supplied Liberty House's private-label merchandise for at least two years.

Company officials said today that Hawai'i will be the only market in Macy's division that will have local buyers to focus specifically on Hawai'i-made and island-appropriate merchandise. The stores are expected to complement those offerings with national and international namebrands.

Ala Moana key spot

Jeff Stinson, senior research analyst at Cleveland-based corporate information dealer firm Midwest Research, said the big opportunity in Hawai'i for Cincinnati-based Federated is the space it gains at the malls, particularly Ala Moana Center.

"Ala Moana is one of most productive malls in the U.S.," he said. "For any retailer it is a golden opportunity to get a location at that site."

Also, because Ala Moana anchors J.C. Penney, Sears Roebuck & Co. and Neiman Marcus are not direct competitors, Federated's purchase would allow Macy's to assume Liberty House's uncontested niche, according to Stinson.

"There are not many markets when you look across the U.S. where you don't have a lot of outside competition fighting for the same core customer," he said.

Analysts noted that an acquisition in Hawai'i, where about 2 million Japanese visitors come annually, also could move Federated a step closer to the long-considered possibility of overseas retailing.

Company chairman and chief executive James Zimmerman has said in the past that Federated has and is considering possible expansion into Europe and Asia.

"For the first time they would have several stores offshore," said Barnard. "It could very well become a springboard for them to other areas: Japan, Hong Kong possibly."

Macy's West division had $4.3 billion in sales last year and operates 117 stores in Arizona, California, Minnesota, Nevada, New Mexico and Texas.

Federated profitable

Federated, a publicly traded company, last year had total revenue of $18.4 billion. Profits, excluding unusual items, totaled $637 million.

Since emerging from bankruptcy in March, Liberty House has been owned primarily by private investment firms Oaktree Capital Management LLC of Los Angeles and DDJ Capital Management LLC of Wellesley, Mass.

The two investment funds sometimes referred to as "vulture funds" for their practice of buying devalued debt of distressed companies, acquired Liberty House for $170 million earlier this year under a bankruptcy reorganization plan approved by a majority of creditors.

Andrew Gomes can be reached by phone at 525-8065, or by e-mail at agomes@honoluluadvertiser.com.