Carter Hawley Hale Stores, Inc.
Carter Hawley Hale Stores, Inc.
Incorporated: 1919 as The Broadway Department Store
Sales: $2.86 billion
Stock Exchanges: New York Pacific London
Carter Hawley Hale Stores, Inc. is one of the largest department store retailers in the United States. Headquartered in Los Angeles and concentrated in California, it operates 89 stores through four divisions: The Broadway-Southern California, The Broadway-Southwest, The Emporium, and Weinstocks. In 1991 the company was in reorganization under Chapter 11 of the U.S. Bankruptcy Code, a situation brought about by high debt levels and a downturn in the retail industry.
Carter Hawley Hale traces its origins back to 1896, when Arthur Letts opened the first Broadway department store at 4th and Broadway in downtown Los Angeles. Letts’s Broadway store was among the first wave of indigenous California department stores, a wave that included The Emporium in San Francisco, The H.C. Capwell Company in Oakland, and O.A. Hall & Co. in northern California, among others.
With more than 600,000 square feet of selling space, Letts’s store was successful in selling men’s and women’s clothing, crockery, and a variety of other items. In 1919 the Broadway Department Store of Los Angeles incorporated in the state of California. Business remained good through the 1920s, and in 1926 the Broadway reincorporated under the more favorable laws of Delaware.
By 1931 Malcom McNaghten had become The Broadway’s president. McNaghten made his first move toward expansion in March 1931 when he acquired the Hollywood store of the B.H. Dyas Corporation. McNaghten quickly converted the 230,000-square-foot facility to Broadway standards and began operating it as the Broadway-Hollywood the same year. Sales increased yearly during the 1930s, reaching $16.2 million in 1939. Earnings, however, were erratic. In 1934 the company lost $5,000. Net income hit $539,000 in 1937 but fell to $160,000 the following year.
In 1940 McNaghten returned to expansion, opening The Broadway-Pasadena on November 15. With 95,000 square feet of floor space, the new store contained three stories for selling and a partial basement for service departments. At year’s end, sales reached $15.9 million, while income topped $231,000. During World War II, both sales and profits boomed; 1945 sales reached $31.7 million, and that year’s profits topped $1 million for the first time.
With McNaghten’s retirement imminent, the directors hired Edward W. Carter as vice president in 1945. Promoted to president the following year, he took charge of an outfit not yet at the top of the southern California market. In fact Carter later ranked Broadway stores as “last among Los Angeles department stores both in size and in stature.” Carter was a scholarly Harvard graduate with sparkling retail credentials. Within months of his accession to the presidency, he pioneered the suburban shopping center, building one of the nation’s first, The Crenshaw Center, on a former golf course outside Los Angeles. In succeeding years, he built a series of Broadway stores along the freeways of suburban Los Angeles.
Carter’s plans were ambitious, and he needed capital to fund them. He sought outside investors and in May 1949, sold 195,348 shares of newly issued Broadway Department Stores stock to Hale Brothers Stores, Inc. of San Francisco. First established in 1876, Hale was a family-owned business that operated a women’s specialty shop, several radio and appliance stores, Weinstock Lubin & Co., and four other department stores in San Francisco, Sacramento, Oakland, and San Jose. Although Hale had 12 stores, compared to Broadway’s four, they were smaller than Broadway’s, and Hale’s 1948 sales of $38.5 million were almost $10 million less than Broadway’s $47.9 million.
Hale operated as a Broadway affiliate until 1951, when Edward Carter and Prentis Hale merged the two companies into Broadway-Hale Stores, Inc. Carter became president of the new company, while Prentis Hale took the new position of chairman of the board. The chains retained their respective names and operated as separate divisions, an arrangement that set the pattern for Broadway-Hale’s many future acquisitions.
In the 1950s Carter upgraded the look of Broadway stores, adding carpeting and new, more expensive fixtures. His approach to expansion was regional. He created clusters of stores around metropolitan areas and serviced these stores through centralized local headquarters. All stores had to be within 35 miles or a one-hour drive of a local headquarters that handled buying.
In 1956 Carter and Prentis Hale made their first joint acquisition, paying about $10 million for 99.2% of Dohrmann Commercial Co. First incorporated in 1904, Dohrmann offered diverse operations in retailing and service. Dohrmann Commercial distributed china, glassware, silverware, furniture, appliances, and kitchen equipment through specialty stores in San Francisco and leased departments on the West Coast. Dohrmann Hotel Supply operated 19 hotel supply branches and ran sheet metal plants in California, Washington, Oregon, Nevada, Arizona, and Hawaii. Dohrmann also owned 16% of the Emporium Capwell Company, which in turn owned the largest department stores in San Francisco and Oakland. At the end of 1956, sales topped $106 million, while profits reached $2.7 million. Between 1951 and 1960, sales increased 96%, and earnings tripled, rising from $2.1 million to $6.3 million.
Carter made numerous acquisitions in the 1960s. In March of 1960, Broadway-Hale paid $1.55 million and 60,225 shares of common stock for Coulter’s of Los Angeles. The following year Carter forked over 214,857 shares of Broadway-Hale stock for Marston Co. of San Diego, and in June of 1962, Broadway-Hale acquired the entire common stock of Korrick’s Inc., an Arizona department store, for 100,000 shares worth an estimated $4.15 million.
Because retailing was Broad way-Hale’s concentration, Carter sold Dohrmann Commercial Co. and Dohrmann Hotel Supply for $11.3 million in January of 1962. Broadway-Hale retained the important stock in the Emporium Capwell Corporation and was growing quickly; in 1964, it listed its stock on the New York Stock Exchange.
In 1966 Carter and Hale began making moves toward acquiring a controlling interest in Emporium Capwell. In the mid-1960s the Federal Trade Commission (FTC) was actively involved in approving or disapproving mergers that it felt might impair competition. After consideration, the FTC approved the Emporium merger, but banned Broadway-Hale from further mergers without FTC approval. Broadway-Hale achieved 50.3% ownership of Emporium Capwell in two installments, one in 1967 and another in 1968. At a total cost of more than $72 million, the actual merger of Emporium Capwell into Broadway-Hale did not occur until 1970.
Emporium Capwell was as old as the Broadway and traced its roots to two San Francisco stores, the Golden Rule Bazaar, founded in 1871, and The Emporium, founded in 1886. At the time that Broadway-Hale was seeking a controlling interest, Emporium Capwell consisted of The Emporium, the largest department store in San Francisco; H.C. Capwell Co., the largest department store in Oakland; and 11 other department stores in northern California. The Emporium Capwell acquisition was part of a buying spree that tripled sales between 1968 and 1973. It was a time of voracious acquisitions, one occurring on the heels of another.
On January 15, 1969, Broadway-Hale acquired Sunset House, a leading mail-order chain, for approximately 300,000 convertible $2 preferred shares. On April 16 of the same year, Carter paid $40 million for Dallas-based Neiman Marcus Company. Stanley Marcus’s high fashion specialty stores were the darlings of the media, and their acquisition gave Broadway-Hale a caché it had never attained previously. The actual Neiman Marcus stores, however, all three of which were in Texas, had low profit margins. After approving the deal, the FTC ordered Broadway-Hale to refrain from further retailing mergers until 1974. Despite FTC warnings, Edward Carter capped 1969 on November 13, by acquiring Waiden Book Company, Inc., the country’s largest bookstore chain, for 105,000 convertible common shares.
At the close of 1969, Broadway-Hale Stores was the nation’s nth-largest department store chain—boasting 45 stores—and the biggest retailer in the West. In 1970 Carter finally merged Emporium Capwell and Broadway-Hale, giving Broadway-Hale a network of stores in the major cities of California and parts of the Southwest.
In March 1971 Carter agreed to acquire Bergdorf Goodman Company, one of New York City’s most respected retailers. At the time, Bergdorf Goodman had a single store on New York’s Fifth Avenue, but as part of the deal, Carter and andrew Goodman agreed that Broadway-Hale would finance Goodman’s move into the suburban markets adjacent to Manhattan. By the end of 1971 sales were up 11 %, hitting a record $755.4 million. Earnings, too, soared 24% to $28.6 million.
As a result of Carter’s many business achievements, other retailers respected him as a good merchant and a man on top of consumer trends. His approach was decentralized: rather than molding diverse stores into a single coherent chain, as Nordstrom’s or Dillard’s did, he organized Broadway-Hale into divisions in which each chain had substantial autonomy over its own operations. For their part, Carter and his staff kept close watch on financial reports.
Carter had been president for 25 years and realized it was time to groom a successor. In 1972 he appointed Philip M. Hawley, a Phi Beta Kappa graduate with a degree in economics from the University of California at Berkeley. After a stint at Merrill Lynch, Hawley started a chain of ice cream parlors, one of which was called Broadway Ice Cream Bowl. He began his retail career at Lipman Wolfe Co. in 1952, and in 1958 joined Broadway-Hale as a buyer. In ten years he worked his way up to the presidency of Broadway, completing Harvard’s advanced business management program along the way.
With Hawley president, Carter became chief executive officer and Prentis Hale remained chairman of the board. Despite the corporate changes, expansion continued as planned. The acquisition of Bergdorf Goodman was completed, and the Neiman Marcus division opened its first store outside Texas in fashionable Bal Harbour, Florida. Broadway-Hale then acquired Holt Renfrew & Co., a 19-store upscale specialty group based in Montreal.
In May 1973, Carter announced a huge new expansion plan. Broadway-Hale would open 40 stores in a five-year period at a total cost of $350 million. There would be 15 new specialty stores for Bergdorf Goodman, Holt Renfrew, and Neiman Marcus, and 25 new department stores for Broadway, Emporium, Capwell, and Weinstocks. The goal of the expansion program was $1.5 billion in sales by 1977.
While Carter and Hawley were pursuing their expansion plans, they continued on the acquisitions trail. In 1974, they paid more than $78 million for a 20% stake in House of Fraser Ltd., which operated Harrods of London, 135 other retail stores in Britain, and Illium’s of Copenhagen. Although European merchandising was not the company’s grand ambition, the deal seemed too good to pass up. In 1975, management changed the company’s name from Broadway-Hale to Carter Hawley Hale Stores, Inc.
In 1977 Philip Hawley succeeded Edward Carter as chief executive officer. In an interview with The Wall Street Journal, June 19, 1984, Hawley said the company he now took charge of was a “confederation of retailers under a common owner that hadn’t made any effort at melding the various businesses.” With this in mind, Hawley saw his main goal as melding Carter Hawley Hale’s diverse retailing businesses into a single well-run company. He convened a six-member corporate planning committee that over a period of 18 months created a plan for the future.
While Hawley saw the need for better management of existing holdings, he continued shuffling divisions, first selling the House of Fraser holdings for $76 million and then unsuccessfully bidding for Chicago-based Marshall Field & Company. In fiscal year 1977, the company earned $42 million, or $1.97 a share, on sales of $1.4 billion. Earnings as a percentage of total revenue were lower than in the early 1970s, and the company fell short of its goal of $1.7 billion for 1977 sales.
One of Carter Hawley Hale’s biggest years for acquisitions was 1978. In February, the trustees of John Wanamaker, the venerable but shaky Philadelphia chain, asked Hawley to acquire the concern. In May a deal was completed for the 15-store, $280 million-in-sales retailer. In June of the same year, Carter Hawley Hale acquired Thalhimer Brothers of Richmond, Virginia. With 26 outlets and sales of $140 million, Thalhimer was one of the largest independent department stores in the Southeast.
Despite the massive growth, many were dissatisfied with Carter Hawley Hale’s earnings. In 1978, Carter Hawley ranked 13th in return on sales with a 3.3% profit margin. In April 1980 Forbes complained that “Carter Hawley Hale’s weak per share-earnings progress stems not from management bumbling but rather from the company’s almost limitless fascination with buying up great old retailing names and trying to convert them into profitable businesses.”
To improve profits, Philip Hawley centralized and standardized store planning and design, security, budget reviews, and personnel policies. He instituted a corporate marketing services department that centralized buying and began working on higher-margin house brands. Despite these moves, which expanded the staff from 65 to 275—not huge for a company with annual sales of $3.63 billion—earnings dropped 17% in 1981.
By 1983, Carter Hawley Hale’s portfolio of stores made it the nation’s sixth-largest retailer. Department stores accounted for 66% of sales, including 40 Broadway stores in Southern California; 10 Broadway-Southwest stores in Arizona, Nevada, and New Mexico; 21 Emporium Cap well stores in northern California; 25 Thalhimers stores in southern Virginia, North Carolina, and South Carolina; 16 John Wanamakers in Pennsylvania, New Jersey, Delaware, and New York; and 12 Weinstocks in California, Nevada, and Utah.
High-fashion specialty stores accounted for 21% of sales, including Bergdorf Goodman in New York City, 19 Neiman-Marcus stores around the country, and 17 assorted stores in Canada. Specialized merchandising operations produced the 13% balance of sales, including 71 Contempo Casuals and 810 Waldenbooks owned by Waiden Book Company.
While sales and operations continued to grow, profits declined in 1981 and 1982 and were stagnant in 1983. Some suggested that earnings had been depressed because of Haw-ley’s long-term centralization and modernization strategy, which included building a $75 million computer center. Others were merely dissatisfied with low earnings. When Edward Carter retired in 1983 and Philip Hawley was named chairman, critics further complained that Carter Hawley Hale was too much a one-man show.
Low earnings made Carter Hawley vulnerable to a takeover attempt, which is exactly what happened early in 1984, when Ohio-based retailer The Limited, Inc. offered to buy Carter Hawley for $1.1 billion. Hawley was against selling the company and responded to The Limited’s offer by selling 38.6% of voting securities to General Cinema Corporation, a Newton, Massachusetts, soft drink bottler and theater owner that had promised to support Carter Hawley’s management. Fearing institutional investors would sell the company out from under it, Carter Hawley also bought 51% of its shares on the open market for $470 million, much of it borrowed. To pay the debt, Hawley sold Waldenbooks to Kmart Corporation for $295 million.
At the company’s June 1985 annual meeting, an optimistic Philip Hawley predicted “substantial profit growth every quarter” and announced plans to spend $650 million renovating stores. At the same time, the more critical press characterized the company as “laggard” and “frequently saddled with stale inventories and a murky merchandising strategy.”
Low profits, high interest rates, and substantial debts taken on during the takeover fight proved to by a volatile combination in March 1986, when Standard & Poor’s (S&P) placed about $545 million in Carter Hawley Hale Stores debt securities on its Creditwatch list, with negative implications. S&P said, “it now appears that Carter’s various retail businesses do not have the fundamental strengths necessary to achieve this turnaround, especially in a competitive retailing environment.”
Sensing weakness, The Limited, Inc., in partnership with shopping-mall builder Edward J. DeBartolo Corporation, renewed the takeover fight, offering $55 and then $60 per share for Carter Hawley Hale’s assets. Hawley again rejected the takeover bid. As with the first takeover attempt, it bought back shares and turned to General Cinema as its white knight. General Cinema bought 3.56 million shares for a total of $177.9 million.
Once Carter Hawley made the second sale to General Cinema, The Limited withdrew its offer. Hawley had won the takeover battle, but he may have lost the corporate war. Debts were reaching crushing levels, and Carter Hawley Hale now had neither the cash nor the credit for renovation, which was desperately needed if it was to raise earnings.
Hawley’s first move was to sell the John Wanamaker stores to Woodward & Lothrop Inc. in January 1987. Next he split the company into two entities: department stores, that would continue to be called Carter Hawley Hale Stores, Inc., and specialty stores that would be controlled by General Cinema. General Cinema would no longer have a significant interest in Carter Hawley Hale. Each of half of Carter Hawley 32.7 million shares was converted into one share in the surviving department store company, one share in the specialty store spin-off, and $17 in cash.
At deal’s end, General Cinema controlled Neiman Marcus, Contempo Casuals, and Bergdorf Goodman. These once classy stores were in bad shape and in need of refurbishing. Carter Hawley Hale was left with The Broadway, Broadway-Southwest, Emporium Capwell, Thalhimers, and Weinstocks. often neglected, these surviving department stores would need much remodeling and remerchandising if they were to provide substantial profits. With huge debts, it was doubtful that Carter Hawley Hale could meet those capital needs.
Disaster struck again in 1989 when the San Francisco earthquake damaged twelve Emporium stores. All closed temporarily, and Emporium’s downtown Oakland store remained closed for most of the fiscal year. At year’s end the company reported a net loss of $26 million, or $1.03 a share, on sales of $2.86 billion.
Awash in debt, Carter Hawley Hale found it could not finance the store remodeling programs at its four West Coast Divisions—Broadway-California, Broadway-Southwest, Wein-stocks, and Emporium—while taking care of Thalhimer in the Southeast. In October 1990 it agreed to sell Thalhimer to May Department Stores for $325 million. Much of the money was used to cut losses and pare debt by about 20% of $1.32 billion. Some money, however, was earmarked for a $110 million remodeling program for 16 to 20 California stores.
Circumstances continued to deteriorate in the winter months. Hawley cut staff by more than 1,000. Stock prices fell to P/s from 14. On February 5, 1991, the major rating agencies downgraded Carter Hawley’s $350 million in junk bonds. A plan to sell credit card operations to General Electric Capital Corporation fell through, and a $100 million credit line from the Bank of America collapsed.
On February 11, 1991, the company sought protection from creditiors under Chapter 11 of the U.S. Bankrupcy Code. In hopes of accelerating its emergence from Chapter 11, Carter Hawley Hale sold about 80% of its debt to an investor group, Z/C Subsidiary Corporation, a subsidiary of Zell/Chilmark Fund L.R In the first six months of its 1991 fiscal year, Carter Hawley Hale reported a slight decrease from the previous year, although revenues began to recover toward the end of the period.
Carter Hawley Hale Credit Corp.; Carter Hawley Hale Properties; CHH Holdings, Inc.; Private Business Airservice, Inc.
Barmash, Isadore, “Merchant From the West: E.W. Carter Heads Retail Chain That Bought Bergdorfs,” The New York Times, June 1971; “Broadway-Hale’s Elegant Growth Plan,” Business Week, April 15, 1972; Merwin, John, “Promises to Keep,” Forbes, April 28, 1980; Sansweet, Stephen J., “Carter Hawley Trails Show Risk in Adopting Long-Range Strategy,” The Wall Street Journal, June 19, 1984.