How business, doctors and journalists prey on your food anxieties I

Woolworth Corp .
lished during his vears at Federated
<strong>and</strong> elsewhere . Ralph Lauren offered
him the m:mber m-o j ob at h is compam,
<strong>and</strong>, according to headhunter
Herbert il4ines, Farah had other offers,
too . But they ~ceren't Mhat lie
wanted . Says Mines : "He had already
been burned by corporate politics-at
Macv <strong>and</strong> Federated-<strong>and</strong> wanted to
run his own show ."
Woohaorth Corp ., the badlv tattcrcd
58-billion-a-vear retailer, offered
%rhat he %cas looking for . In ntici-
December L•e became Woohanrth's
chairman <strong>and</strong> chief executne . As an
incentiNe he ~%as granted options on
800,000 Woolworth shares at
513 .63-recent price S15 .38-<strong>and</strong>
200,000 shares in restricted stock .
Woolworth was a mess, <strong>and</strong> Farah
kne«it . Its sales <strong>and</strong> earnings had
dropped since the earlv 1990s . Bv last
year net earnings had almost vanished,
the net profit margin was under
a pennv on the sales doilar <strong>and</strong> its chief
esecutice, lVilliam Lavin, had been
forced out . By the beginning of dtis
year the company was almost out of
cash <strong>and</strong> its short-tern debt had
ssvel!ed from just 516q million in
1992 to S853 million in 1994 . "Profits
had dwindled so much, it became
impossible to pavdown that debt after
the Christmas selling season," esplains
Manin Behm ofDuff& Phelps
Credit Rating Co .
- Farah was looking for a challenge,
but lie ma% ha~ e gotten more tlrut he
bargained for . ~Voohvorth was facing
A new Foct Locker in Manbattan
Woolworth needs cash to update
the rest of the chain .
its annual bank re~ie« in the early
summer, <strong>and</strong> Farah was concerned
that the company might violate its
loan co%enants-he needed some
breathing room-so off he Nrent to
meet with his bankers . With a respected
merchant no\k running the company,
the banks agreed to extend a S 1 .5
billion reNolcing credit line-S1 billion
for three ve ;trs Atd S500 million
for one year . Farah then raised S200
million by issuing long-term debt,
<strong>and</strong> has another S430 million on the
shc!f that he can issue if need be .
To get Woohvorth solcent . Farah
knocked out the sacred dividend-it
had had an unbroken record of 83
eears-slaslted capit.tl spending,
`Basically Woolworth
is a kennel club .
Most of them are dogs ."
wrote down inrentorv <strong>and</strong> began
looking for asser; to sell .
In short, he was functioning as a
financier more than 3 merch<strong>and</strong>iser .
But Woolworth's problems aren't
purehfinancial . Thetare fundamental
. 1W'oohwrth is not so much a
retailing companr as a holding company
for assorted retail chains . One of
those is the Athletic Foonrear & Apparel
di%ision led bv flagship Foot
Locker, a 1,828-shop chain, long
R'oohworth's star . That . svith the rest
of the footwear division, accounts for
some 70%of the companc's operating
protits . But the market for athletic
shoes has sloued to a 2%-a-%,ear
growth rate from the 18% it enjored
in the late 1980s, <strong>and</strong> Foot Locker's
inventory control svstem is lacking
sophistication, its stores in serious
need of modernizing .
Other Woolworth chains include
the San Francisco Music Box Co ., a
musical gift company, the Best of
Times, a watch retailer, <strong>and</strong> Karuba,
selling women's casual apparel . Farah
«ould probabhlike to sell some of
these, but that won't be easy . Many of
these chains are failing ; some that
might be able to succeed need extensive
remodeling <strong>and</strong> a promotion
budget . Few, if any, will comm<strong>and</strong>
decent prices . Since they're ntallbased
with short iive-y°ear leases, they
don't even have leases to sell . Savs
Alan \-[illstein, editor <strong>and</strong> pub!isherof
Fashion Network Repor., `Basicallv,
Woohrorth is a kennel club . Iv[ost of
them are dogs ."
Farah has unloaded a few of the
dogs . [n the first quarter, ended Apr .
29, Farah sold r ..Y Place, a chain of
pharmacies, for 537 million in cash,
notes <strong>and</strong> the assumption of liabilities
. He also found a buver for Kids
Mart/Little Folks, 331 children's
clothing stores, for $ 15 million .
Miat about the old varienr stores
themselves? Their Euture is dim . Thev
have been pared down from about
950 to 428 . Afost ofthose left do ha~e
valuable 20-% zar leases, but if riiev are
to be sold, thcv must be sold one bv
one . It is unlikelv that anv buver %%ants
the whole group
. Woohworth lost money in the first
quarter, $80 million on 51 .8 billion in
sales, <strong>and</strong> a return to past levels of
profitability is still some way ol'r .
Which means that Farah will haNe to
continue keeping the financial wolves
at bay for a witile longer .
Rogcr Farah declined to be interviewed
for this ston~, Who can blame
him? With all the fires lie has to put
out, lie probably has not yet had time
to formulate merch<strong>and</strong>ising plans for
his mishmash of <strong>business</strong>es, let alone
draw up a clear strategy for a mrnuround.
~
=s Fnrbes . August 14 .. 1995
20466i3305
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