Macy's pledges to keep spirit of Liberty House
By Andrew Gomes
Advertiser Staff Writer
The state's oldest and largest retailer marked its end yesterday, but in some ways the essence of Liberty House which for a century-and-a-half has been a part of the fabric of Hawai'i will also be preserved by its sale to Federated Department Stores Inc.
"Liberty House has a long tradition in Hawai'i, and we are enthusiastic about building upon its history," said Macy's West Chairman Jeremiah Sullivan, who from 1973 to 1979 worked for a Liberty House division in California.
Federated said yesterday it will buy all of the kama'aina retailer's 18 stores and convert all but one to Macy's. The acquisition, expected to be completed as early as July 9, includes all of Liberty House's 11 department stores, seven resort and specialty stores in Hawai'i, and one department store in Guam.
The Macy's West division of Federated will slowly digest the local company that had become one of the few independent regional department store chains in an increasingly consolidated industry. Macy's, a company with its own well-known and long history, will become the first owner of Liberty House to be solely focused on retail since 1918 when retailer B.F. Ehlers sold the company to American Factors Ltd.
"All of us at Macy's respect and admire Liberty House's 152-year tradition in Hawai'i," Sullivan said. "I promise you that we will continue to honor that history and the hard work of generations of employees who have helped the company thrive in booming agricultural times, two world wars, territorial days, statehood and now the new millennium."
Liberty House President John Monahan, who has been with the company for more than a decade and helped lead it through a tumultuous three-year bankruptcy reorganization, will leave the company after a transition period.
"This is a bittersweet time," he said yesterday. "Bitter because of reaching the end of my association with this great store and with the great people of Hawai'i.
"However, today is sweet also because it puts an end to all the uncertainty and speculation about Liberty House and also to whether the Hawai'i communities that Liberty House currently serves would continue to be served by a quality retailer over the long-term."
Federated's purchase comes less than four months after Liberty House emerged from Chapter 11 bankruptcy reorganization under the primary ownership of two private Mainland investment firms that had been expected to eventually sell the retailer.
All of Liberty House stores will become part of the Macy's West division and will be overseen by Deena Nichols, a Macy's West senior vice president.
Many of the planned changes at Liberty House are not expected to take place quickly, although some layoff notices have already gone out to administrative staff.
Macy's officials said they expect to retain most of the 2,400 sales associates working in stores. But for the nearly 400 management, administration and distribution personnel, job cuts are inevitable because of duplication at Macy's headquarters.
"Ultimately, there are going to be some layoffs," Sullivan said.
Some displaced Liberty House employees may be offered opportunities to work at Macy's and other Federated companies on the Mainland, he said, adding that Macy's has held positions open for several months in preparation for its acquisition of Liberty House.
The only Liberty House store to close will be a small specialty shop at the Marketplace on Kaua'i. Three employees there will be offered jobs at the Kukui Grove store, according to Sullivan.
Another small shop, which was not identified, is negotiating to extend its lease. Sullivan said that assuming negotiations are successful, Macy's also will continue operating there.
Several retail analysts had not expected Macy's to keep Liberty House's small stores in hotels, but Sullivan said the resort shops "intrigued" the company.
"Right now our plans are to run every store with the exception of one," he said.
The Liberty House name is also something that Sullivan said Macy's would like to carry on in some form. All stores, which will retain the Liberty House name for the near term, will ultimately be converted to the Macy's name. But the company is evaluating options to use the Liberty House moniker in some way.
"We believe in the value of the Macy's name but, at the same time, we are sensitive to the Liberty House tradition," Sullivan said.
Inside the stores, Macy's executives said little change should be apparent to customers after the takeover because merchandise, prices and customer service at Macy's and Liberty House are "very similar."
Some new national vendors will be added to the men's and women's clothing departments and to housewares. Federated already supplies Liberty House's private-
label merchandise. Macy's will continue to carry Hawai'i-made and Island-appropriate goods.
"We are fascinated by the amount of merchandise that is here that is Island-specific and, frankly, we don't want to screw it up," he said, adding that the Hawai'i Macy's will be the only stores in the company to have local buyers focusing specifically on local merchandise.
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.
Sullivan noted that Macy's stores on the Mainland could be an opportunity for Hawai'i vendors to extend that business.
"I think it's going to be a cross-pollinization," he said.
Bob Mettler, Macy's president, added that catering to both local shoppers and visitors will continue to be a focus for Macy's, which receives a lot of visitors at its San Francisco stores.
Some retail observers had speculated that Federated's conversion of Liberty House would give Ala Moana Center owner General Growth Properties Inc. a chance to bring Nordstrom to the mall, a move that Liberty House had blocked in court. But Sullivan said that issue was settled then and is not open to negotiation.
Acquisition no surprise
Yesterday's announcement came as no surprise to analysts who had said for several years that such an acquisition of Liberty House was to be expected, given Federated's previous interest in the local retailer and the investment-oriented goals of Liberty House's current owners.
In 1997, Federated was widely reported to be in negotiations to buy Liberty House. But no deal was reached, and Liberty House filed Chapter 11 bankruptcy in 1998.
Sullivan said that four years ago when Federated looked at buying Liberty House, it was unclear what would happen with the Hawai'i economy and the retailer. But now, Liberty House has emerged from bankruptcy with more efficient operations, fewer stores, little debt and profits four things analysts said made the company even more attractive for acquisition.
As part of the bankruptcy reorganization, Liberty House wound up being 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 under a bankruptcy reorganization plan approved by a majority of creditors.
Monahan also noted that the department store business has been one of consolidation for the last 15 to 20 years. Liberty House, he said, was the smallest regional department store chain left.
"Industry-wise, this is inevitable," said Douglass Smoyer, president of Honolulu-based consulting firm Retail Strategies Inc. "It used to be that big is better. Now it's big is survival."
The purchase of Liberty House gives Macy's several prime shopping mall locations with little core competition, as well as serve as a stepping stone for a possible Federated expansion to Asia, analysts said.
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.
Sullivan said sales at the Ala Moana store will make it the fifth-highest-grossing store out of 117 stores in the Macy's West division. He said that ranking could rise to No. 3.
Currently, the Macy's Union Square store in San Francisco, which is 874,000 square feet, is No. 3 in sales. The Ala Moana store is 327,000 square feet.
Andrew Gomes can be reached at 525-8065, or send e-mail to email@example.com.