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The Honolulu Advertiser
Posted on: Wednesday, June 20, 2001

Liberty House buyer follows proven strategy

 •  Macy's pledges to keep spirit of Liberty House
 •  Q&A: Retailer Macy's says it's here for long haul
 •  Demise of Hawai'i's oldest retail store chain saddens many
 •  A look at Liberty House, FDS and Macy's
 •  Details of sale ensure most of 3,000 workers will be retained
 •  Lee Cataluna: Liberty House came through for local folks
 •  Graphic: Liberty House chronology
What do you think of the Liberty House purchase? Join our discussion.

By David Butts
Advertiser Staff Writer

Federated Department Stores Inc., soon to be the owner of Liberty House, has a history of buying department store chains, converting them to Macy's or other names, closing unprofitable stores and laying off excess staff.

One of Macy's stores is in Union Square, San Francisco, where the retailer has headquarters.

Macy's West photo

That's a strategy that has kept Federated's sales and profits growing over the past six years and made it popular with analysts. Almost three-fourths of the analysts who cover Federated give it a favorable "buy" rating, according to Bloomberg data.

It's also the approach Federated has taken since its inception.

Federated was formed in 1929 with the combination of four department stores, including Bloomingdale's and Lazarus. Those two names have survived while most on the long list of chains since absorbed by Federated have lost their individual identity.

Liberty House will be no different.

Federated officials said they will change the Liberty House name to Macy's and lay off an undetermined number of the 400 administrative employees as they consolidate management functions at the Macy's West headquarters in San Francisco.

"The Liberty House acquisition represents an exciting strategic and growth opportunity for Federated," said James Zimmerman, Federated's chairman and chief executive officer. The purchase should add to Federated's profits within two years, the company said.

Federated did what it could to assure Liberty House's staff and customers that the change will be minimal and gradual.

Most of the 2,400 employees who work in Liberty House stores will be retained. And the Liberty House name will remain in the "near term," the company said.

"Liberty House has a long tradition in Hawai'i, and we are enthusiastic about building upon its history," said Jeremiah Sullivan, chairman of the Macy's West division, which will run Liberty House.

Among Liberty House's 12 department stores is one at Kahala Mall. The retailer's soon-to-be owner plans to convert the kama'aina retailer into Macy's.

Gregory Yamamoto • The Honolulu Advertiser

Hawai'i will be the only market in the Macy's division that will have local buyers to focus specifically on Hawai'i-made and Island-appropriate merchandise, the company said.

The laid-off Liberty House administrative employees will have the opportunity to interview with Macy's for positions in Hawai'i, as well with Federated on the Mainland, the company said.

That's the same approach Federated took toward employees of Stern's department stores when it closed the 134-year-old New Jersey-based chain this year. Federated shut five Stern's stores and converted 19 to Macy's and Bloomingdale's.

Federated said 2,600 Stern employees who worked in the central office and in the closed stores were given priority for open positions at other Federated locations.

Stern employees who lost their jobs were eligible for severance and outplacement benefits. The company said in February that it expected the cost of closing Stern's to be between $130 million and $150 million, which could be covered by selling the real estate from Stern's closed locations.

At Federated's most recent acquisition before Liberty House, the layoffs were not immediate. Federated paid $1.7 billion for Fingerhut, the biggest U.S. catalog retailer after J.C. Penney Co., in March 1999, hoping to improve Federated's catalog and Internet sales.

However, sales at the Fingerhut division declined after the purchase and the unit experienced a jump in delinquent credit-card accounts. Federated said in October it would eliminate 550 Fingerhut jobs and cut back on its Internet operations. The company planned to take a $75 million to $100 million charge to pay for the costs of laying off employees.

In 1995, Federated bought 82 stores of Los Angeles-based Broadway Stores Inc. and announced it would convert most of the stores to Macy's and Bloomingdale's. About 20 stores were sold or closed and about 775 jobs eliminated.

Sullivan, who will soon be in charge of Liberty House, said Federated will do all it can to help laid-off employees.

"Our human resources specialists will immediately begin meeting with individual employees to discuss all appropriate options," he said.