Carson Pirie Scott & Company
Carson Pirie Scott & Company
Carson Pirie Scott & Company is a regional department store chain, operating 51 stores in Illinois, Indiana, Minnesota, and Wisconsin. The company is a combination of several smaller department store chains, all with long ties to midwestern cities. Its key markets are Chicago, Milwaukee, and central Illinois, and in these three areas it is either the leading or number two department store. Carson Pirie Scott & Co. operates department stores under the name Carson Pirie Scott in Chicago, Bergner’s in central Illinois, and Boston Store in Wisconsin. Its department stores are targeted primarily toward middle-income shoppers. Carson also operates two furniture stores.
Carson Pirie Scott & Company was founded by Irish immigrants Samuel Carson and John T. Pirie. The two men started from northern Ireland together aboard The Philadelphia, which shipwrecked off Newfoundland. Undeterred, Carson and Pirie found another ship to take them all the way to New York. From there, they went west to the railroad town of Amboy, Illinois, where they opened a dry goods store in 1854. This first store was housed modestly in a remodeled saloon, but in only four years, Carson & Pirie had branch stores in four nearby towns, making it one of the first chain stores in the United States. By 1864 Carson & Pirie had entered the Chicago market with a wholesale operation on downtown Lake Street. This early wholesale business was quite profitable, and the company soon built new quarters on State Street. This building perished in the great Chicago fire of 1871, which also destroyed 60 percent of the firm’s goods. The remainder was saved only because one of Carson’s partners flagged down teamsters as the building burned, and promised them 50 silver dollars for every wagon-load they could haul from the flames.
The company moved into new quarters after the fire. In 1890 Carson and Pirie took on a new partner, Robert Scott, son of another Irish immigrant who had worked at the Amboy store. The company was then called Carson, Pirie Scott & Company. In 1904 the firm moved into a 12-story building on State Street, a beautiful tower designed by the renowned American architect Louis Sullivan. This distinctive building was named a Chicago Historical Landmark in 1959, and it still housed the Chicago flagship Carson Pirie Scott store in the mid-1990s.
Carson Pirie Scott operated in the shadow of another venerable department store, Chicago’s Marshall Field & Company. The two chains had flagship stores only a few doors apart in downtown Chicago. Carson Pirie Scott aimed to sell to middle-income customers, and it was not as large or well-known as the more upscale Field’s. But Carson supplemented its department store business with other ventures. In 1953 it became the first department store chain to sell insurance policies to its customers. And the company branched out further, operating two hotels near Chicago’s O’Hare airport, running a chain of cheese shops, and operating subsidiary companies that made and distributed carpeting and floor coverings. By 1971 annual sales stood at around $250 million. About two-thirds of its sales were from its department stores, and the rest came from other activities.
But the company experienced slow growth in the 1970s, for reasons that affected other department stores in the area as well. The Chicago area lost population, as close to 300,000 people moved out of the city in the 1970s. And new department stores opened up in Chicago, including Neiman-Marcus, I. Magnin, and Lord & Taylor. This made competition for the dwindling retail market even more intense. Carson’s sales and profits grew only about six percent per year in the late 1970s, and its profit margin was slight. In 1980 the company made a major acquisition to further diversify its business away from retailing. Carson borrowed $108 million to buy Dobbs Houses Inc., an airline caterer and operator of restaurant chains.
This acquisition marked a significant change for Carson. Carson Pirie Scott & Co. had done 80 percent of its business in northern Illinois and Indiana prior to the Dobbs acquisition. With its new business, the company actually had a worldwide operation. Dobbs Houses operated 234 restaurants, the Toddle House and Steak N Egg Kitchen chains, with outlets across the United States. But the bulk of its business came from in-flight airline catering and running airport restaurants, gift shops, and newsstands. It held the number two market share in these two areas, behind only Marriott Corp. for in-flight catering and Host International for airport shops and restaurants. Dobbs profit margin was substantially higher than Carson’s, and its profits had been growing at close to 20 percent annually since the mid-1970s. Carson’s chief executive, Harold Spurway, saw little growth possible in retailing, and he was willing to take a lot of debt to get the lucrative Dobbs. The acquisition left Carson with a debt of over 65 percent of capital.
Carson’s new food service division did well. While earnings from department stores fell, airline catering and restaurants contributed over 50 percent of the company’s operating earnings by 1982. Carson’s found a new chief executive in 1983; former Federal Express Corporation president Peter Wilmott. Wilmott moved rapidly to shore up the retail division. His explicit goal was to move Carson Pirie Scott from a regional store to a national presence. The first step in this direction was the acquisition of County Seat in 1984. County Seat was a chain of casual-wear stores with 269 units in 33 states. Its sales for 1984 were close to $200 million, and its acquisition put Carson’s revenues over $1 billion. The company spent $71 million to get Country Seat, increasing its debt. But the company for the first time had retail outlets outside the Chicago and northern Indiana area. Later that year, Carson’s also acquired MacDonald Companies, a mail-order catalog and direct-marketing merchandiser, and Ridgewell’s Inc., a Washington, D.C. caterer.
The company made other changes in its retail division as well. The company’s department store division got a new head, Dennis Bookshester, three months after Wilmott took the presidency. Bookshester ordered more expensive and fashionable merchandise, in an effort to shake Carson’s image as the store for the price-conscious shopper. The new merchandise was touted with heavy television advertising. This strategy seemed to pay off quickly. Sales per square foot went from $84 in fiscal 1982 to $133 the next year. Bookshester also initiated a new store-within-a-store, to lure big-spending women executives. Carson’s new Corporate Level was a posh, mirrored space featuring designer outfits, shoes, and accessories all conveniently at hand. The Corporate Level also had a shoe repair service, a dry cleaner, a place to make photocopies, and a restaurant. Shoppers could pay also pay a $50 annual fee for extra services, including check cashing, use of meeting rooms, and use of a fashion consultant. The Corporate Level was open two hours earlier and closed two hours later than the rest of the store, and had a separate entrance guarded by a doorman. Sales at the Corporate Level in its first year ran 40 percent higher than in the rest of the store.
Carson Pirie Scott’s sales rose to $1.3 billion in 1985. About half of this came from retail operations. Retailing contributed to just under 50 percent of the company’s profits of $18.4 million. Carson still held the number two spot in the Chicago market, with 21 department stores in the area. Chicago’s number three department store chain, Wieboldt’s, had been bought by an investor group called Baytree Investors Inc. in 1985, and shortly after, Baytree set its sights on Carson.
Baytree specialized in leveraged buyouts. Except for its recent acquisition of Wieboldt’s, Baytree’s principals had no retailing experience. Its head, Gilbert Granet, had made unsuccessful bids for a slew of retailers, including Gimbels and B. Altman, only to land the ailing Weiboldts, which had not shown a profit since 1979. Another associate in Baytree had his commodity broker’s registration revoked for falsifying data, and Granet himself had been fired from a company he headed in the 1970s after a buying spree led the company to bankruptcy. Baytree offered $347.2 million for Carson. The investor group claimed it would operate Carson Pirie Scott as a sister store to the Wieboldt chain, and that it would sell off the Dobbs Houses airline catering business. Carson’s board retaliated by rejecting the offer and declaring a “poison pill” dividend to preferred share-holders. Baytree then upped its offer. Carson’s chief executive Peter Wilmott described Baytree as a “corporate pirate,” and after a third offer of $473 million, Baytree withdrew.
Department stores across the country were bought and sold in the 1980s, as some chains consolidated and others sold off assets. Carson Pirie Scott merged with Donaldson’s department stores in 1987, acquiring a chain of 12 stores around Minneapolis. Then, in 1989, Carson Pirie Scott was itself acquired by P. A. Bergner & Company. Bergner had a chain of department stores in Illinois, and it also ran the Boston Store chain in Wisconsin. It was one of the largest regional chains in the country, and its stores had histories almost as long as Carson’s. The first Berg-ner’s, for example, opened in Peoria, Illinois in 1889, and the first Boston Store opened in Milwaukee in 1897. P.A. Bergner & Company had been owned by the Swiss firm Maus Freres since 1938. Bergner paid $343 million for Carson Pirie Scott, and also took on $300 million of Carson’s debt. Bergner saw the purchase as an opportunity to get into the big city market, as most of its 28 Bergner’s and Boston Stores were in small and mid-sized towns.
But the debt burden Bergner took on to get Carson Pirie Scott was apparently too much for the company. Bergner had expected to sell off Carson’s unprofitable catalog operation to raise cash, but the company had to settle for far less than anticipated to liquidate the unit. Refinancing for Carson’s flagship State Street store also fell through. Bergner’s chairman, Alan Anderson, who had initiated the Carson acquisition, resigned in April 1991. There were reports from industry executives that Bergner’s Swiss parent was unhappy with Anderson, because it had to shell out $150 million to help keep the newly merged company afloat. Just two years after the acquisition, Bergner was unable to get enough credit from its bank to pay its vendors. Vendors halted shipments, and the company was forced to file for bankruptcy. Plans to open a new Carson Pirie Scott store in Chicago’s Merchandise Mart were put on hold, and Bergner put various assets up for sale. Maus Freres, Bergner’s Swiss parent, raised money for the company through a sale of its stake in a French store, and paid off $300 million of Bergner’s $900 million debt.
Bergner’s bankruptcy was not surprising. Deep recession in the department store industry had sent several other chains into bankruptcy around the same time, including Federated Department Stores, Ames, and Carter Hawley Hale. The growth of discount chains such as Wal-Mart, Target, and Kmart had eaten into the department stores’ market share all across the country, and competition was unusually fierce. But Bergner’s creditors seemed to agree that the company’s business was essentially good. It was the debt, rather than Bergner’s operations, that was the problem. Bergner submitted a reorganization plan in bankruptcy court in early 1992, and at the same time announced an operating profit of $2.2 million from its third quarter 1991, and then a $35 million profit from its Christmas season sales. Retail operations seemed to be on the rebound. The company was taken over in bankruptcy court by a New York investment firm, Dickstein Partners LP. Its president, Mark Dickstein, became the new chairman. In October, 1993, the company emerged from bankruptcy, and changed its name from P.A. Bergner & Co. to Carson Pirie Scott & Co.
The company had safely come through Chapter 11, but the retail industry was just as perilous. Large department store chains were becoming larger to stay competitive. Carson Pirie Scott now had 59 stores spread across Illinois, Indiana, Minnesota and Wisconsin. May Department Stores, the biggest chain, had 300 stores. Carson made plans to expand. In late 1994, Carson’s initiated an acquisition bid for another midwestern department store chain, the Des Moines-based Younkers.
Younkers had 53 stores operating in seven states; South Dakota, Nebraska, Minnesota, Iowa, Wisconsin, Illinois, and Michigan. Younkers itself had bought a Wisconsin chain, Prange’s, in 1992. And Younkers, like Carson, had emerged from bankruptcy in 1993. The company had experienced several bad years in a row, and was reducing its debt and making its own expansion plans when it received the unsolicited bid from Carson. The combination of Younkers with Carson Pirie Scott would create a chain of 113 stores in eight contiguous states, with sales of around $1.7 billion. Both Younkers and Carson aimed at the middle-income consumer, and the stores would presumably be able to operate more efficiently with a combined distribution network. For Carson Pirie Scott, the Younkers acquisition seemed like a sensible strategy. The problem was that Younkers did not want to be bought. Carson’s initial offer of $152 million set off a protracted boardroom battle.
After Younkers’ board unanimously rejected Carson’s bid, Carson used proceeds from the sale of eight Minnesota stores to offer a $17-a-share cash tender directly to Younkers’ shareholders. Carson was able to buy about 40 percent of Younkers’ common stock. The shareholders then voted at the May 1995 meeting to put the company up for sale, and three directors nominated by Carson were elected to Younkers’ board. Younkers Chairman W. Thomas Gould lost his seat on the board. But the company came up with legal maneuvers that gave Gould and the other ousted directors their seats back, and the board voted again in June not to sell the company. Carson then took its battle to court, suing Younkers for ignoring its shareholders’ wish to sell. As the proceedings dragged on, Carson raised its bid to $20 per share and promised to reseat its board candidates at the May, 1996 shareholder meeting.
While the merger remained undecided, Carson Pirie Scott concentrated on renovating stores. Six stores, including the flagship State Street store in Chicago, were renovated in 1994, and five more were improved in 1995. Sales were sluggish for most of 1995, but the recently renovated stores showed improved performance. Going into 1996, Carson remained committed to its acquisition strategy.
CPS Holding Co.; P.A. Bergner & Co. Holding Company.
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