Restructure a Department Store Chain? Try Running One First.

By Richard Hollowell

Managing Shareholder, Kealoha Corp

Richard Hollowell is the Managing Shareholder of Kealoha Corp, a California based real estate, finance and restructuring consultancy which also provides expert witness services in banking, finance, real estate, bankruptcy and litigation matters on a national basis. He is an Affiliate Expert Witness Professional of EWCS.


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It’s no secret that some 20 major brick & mortar retail chains are on the financial ropes, rating agency downgrades are prevalent, and just last week J.C. Penney announced the closure of 140 stores and two major distribution centers. Just three weeks ago, I was called to discuss analyzing the real estate holdings of a major department store chain; on the other line, a hedge fund that wanted to buy the debt of the chain but was fearful of how the real estate could be reused. And of course, internet shopping trends continue to batter the brick & mortar model. On Black Friday, internet-based shopping actually eclipsed purchases made by consumers in stores.

All this gave me pause to revisit my oversight of a major luxury retail debacle nearly 30 years ago. As the true story goes, I was consulting for a troubled Savings & Loan known as Red Hill Savings on a project known as Broadway Plaza in Denver. The collateral for this near $100,000,000 loan was a one-million square foot Montgomery Ward warehouse, a new luxury department store building, and the continental United States franchise rights to a prestigious French Department Store known as Au Printemp. And of course, the first such store in the U.S. occupied the luxury retail building.

The store was opened in 1987 just months before I was assigned to maximize recovery from what was now a non-performing loan, and control of the project was taken away from the borrower. Hence I’m directing a huge department store staff and an array of so-called “buyers” who asked for a $750,000 check to travel to Europe to select and purchase fashion goods for the upcoming Spring Fashion Season. The good news was that I was introduced to my first “Hermes” necktie. The bad news: the department store and the project were hemorrhaging cash as if they had overdosed on blood thinners. Clearly, the patient would bleed-out.

Action was taken to sell the franchise rights to U.S. based retailers and vulture investors without success. Simply, the retail space was crowded, scaring away both major retailers and even the most ruthless of vulture investors. This all occurred nearly a decade before the internet shopping phenomena got started, so imagine the pressure on brick & mortar retailers today…things will get worse, you can count on it.

About 18 months ago a friend, and perhaps the most astute owner/developer of retail shopping centers I met during my 45-year career sold his portfolio for $2 billion. In asking him why he sold his portfolio he answered, “Richard, I will never, ever, ever get this kind of price for these shopping centers. Brick & mortar is going in the wrong direction.” At my ripe old age, even I have made my last eight purchases of dress slacks, shirts, and shoes online. Thus the heyday of brick & mortar retail is over, and the age of adaptively reusing department store and big box spaces is about to blossom. Those with the creative answers will profit greatly.

Many thanks to the late Joseph E. Robert and my workout mentor Christopher Kallivokas for giving me the opportunity to learn early life lessons in the turnaround and restructuring industry.

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