LH's transformation to Macy's to take time

By Andrew Gomes
Advertiser Staff Writer

Macy's West yesterday began the process of assimilating Liberty House, but most people won't see changes in stores for several months, according to the incoming owners of the company.

Look for major departures from Liberty House after Thanksgiving, says Jeremiah Sullivan, chairman of Macy's West. Advertiser library photo

Business during the next 90 days at Liberty House, however, will be "status quo," said Jeremiah Sullivan, chairman of Macy's West.

Sullivan said the transition will be a long process. Many questions regarding specific changes to merchandise, management jobs, retiree benefits, store restaurants and financial terms of the purchase will be answered in coming months.

A day after he announced the deal for Federated Department Stores Inc., the parent company of Macy's West, to acquire Hawai'i's oldest and largest retailer, Sullivan talked about what led up to the purchase of Liberty House and some of the transitions that lie ahead. He was at Macy's West headquarters in San Francisco during the long-distance interview.

Q. What did you think about Liberty House before it filed for bankruptcy in 1998?

A. We looked at it about four years ago and we were really afraid of the Hawaiian economy at that time. It was heading in a not very good direction. The tourism was down. And (Liberty House) had a lot of locations that weren't to our liking. So we passed on it. Obviously we made a good call on that.

Q. After the bankruptcy?

A. We don't think Liberty House was a bad company. We think it was a good company. It's not like it was poorly run. It was well run. And it's not like it has bad stores. It has good stores.

So it's a function of the fact how can a $300 million company survive in this economy? And while it was marginally profitable, it wasn't the kind of thing that if you had the money invested in it you'd think you were making an adequate return on it. That really is what keys the issue up.

Q. When did Federated get serious about acquiring Liberty House?

A. We've always been interested. But it really comes down to when somebody's interested in selling.

Q. Did (the Mainland investment firms that acquired Liberty House in bankruptcy by buying its debt) express interest in selling?

A. I think you have to assume that when people buy a company like that, they can only do one of basically three things with it: They can sell it; they can do an IPO (public stock offering) with it or they can run it. I think most people will tell you that the most logical of those three steps for the people who owned it was to sell it.

Q. When did Federated start planning for the acquisition?

A. They came out of bankruptcy, what, four months ago? I would say sometime less than four months ago.

Q. How much planning went into the acquisition?

A. There are two streams. The one stream is the financial piece of it. You know, (studying) the integrity of the financial statements.

And then the second stream is sort of setting a game plan for how you're going to run the business. Macy's West's role was the second part, and you're somewhat handicapped in that because a lot of people don't know about (the acquisition) and, as a result, you really can't get in and ask the right questions up front.

... We still have a lot of work ahead of us with respect to running the business.

Q. What kind of work?

A. We're in the formative stage. I mean you can walk through the stores and get a pretty good sense of who Liberty House is and what they do — and we like who they are and what they do. So our goal is to pick up on it and put our spin on it and see what the results are.

This is not the kind of thing that is going to have a tremendous upside potential, because it is not a poorly run company. But there are a lot of economies in consolidation, these days, of companies.

Q.How long will this preparation stage last?

A. We want everything at Liberty House to be status quo for at least 90 days. We have to get our computer systems in place and installed in Liberty House, and they won't be installed until early October.

So (in) June, July, August, September, Liberty House is going to be run with Liberty House systems.

Our buyers will only begin to influence the (merchandise) assortments when our systems come up. And even to that point, there is an extraordinary amount of similarity between the goods that we would carry and the goods that Liberty House carries. In cosmetics we're virtually all the same. A lot of the vendors that you see are the same. And then of course there is all the island-specific merchandise which we want to continue running out of Hawai'i with Hawaiian buyers. I would say there's maybe 15 percent to 25 percent of the assortment that we will change. And that takes a while.

Q. When will consumers notice the first merchandise changes?

A. That probably could not happen much before Thanksgiving.

Q. How have you perceived the reaction to the announced acquisition?

A. I think for the most part the reaction has been, 'Well, we know Macy's. Macy's sounds like a good name and we're willing to wait and see what Macy's has to offer.'

... We understand that we have to show that we can run a department store for the people of Hawai'i as well as the tourists of Hawai'i.