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Merry-Go-Round Is Going Out of Business

February 2, 1996 GMT

BALTIMORE (AP) _ Merry-Go-Round Enterprises Inc. became the latest casualty of the crowded and depressed retail clothing market Friday, announcing it would go out of business and lay off 6,700 workers.

After a two-year battle to emerge from Chapter 11 bankruptcy, the apparel retailer ran out of money and lost the support of the manufacturers who supply the company’s 536 stores, company spokesman Michael Kempner said. Merry-Go-Round said it would begin liquidating its assets.

The news follows the recent demise of the Woodward & Lothrop department store chain and Handy Andy home improvement stores. Analysts say Merry-Go-Round likely won’t be the last to go out of business.

``It’s a wake-up call for the rest of the U.S. retail industry,″ said Mark Millman, president of Millman Search Group Inc., a Baltimore-area retail consulting firm. ``If it can happen to Merry-Go-Round, who three years ago could do no wrong, it can happen to anyone.″

The company said it would start laying off workers immediately but would keep at least some stores open as it tries to sell assets. Despite rumors of interested buyers from New York and California, no one stepped forward to save the company.

``This only happened after the company had completely exhausted all their options,″ Kempner said.

Merry-Go-Round may still be able to sell off parts of its four chains, Cignal, Dejaiz/Attivo, Chess King and the flagship Merry-Go-Round, which jettisoned nearly two-thirds of its 1,450 stores since 1990 to cut costs.

Under a Chapter 11 bankruptcy liquidation, banks are paid first, then come expenses of running the company during Chapter 11, and finally unsecured creditors. That could leave creditors with pennies on the dollar, assuming the company is able to pay off the expenses first.

``The company hasn’t said what it expects to return to creditors,″ said Stephen Selbst, a lawyer for Merry-Go-Round shareholders. ``I have to believe for most creditors this is a major disappointment.″

The beleaguered retailer has gone through four chief executive officers since filing for Chapter 11 bankruptcy protection in January 1994. Former Macy’s executive Richard Crystal was brought in to try to resurrect Merry-Go-Round, but analysts said perhaps no one could have revived a retailer that fell out of step with its young target market in the 1990s.

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The company also couldn’t hold its own against the thousands of other stores selling similar clothes.

Crystal ``came into kind of a hopeless situation,″ said Terrence McEvoy, an analyst with Janney Montgomery Scott Inc. in New York. ``There’s probably 25 to 30 percent more space devoted to apparel today than we need.″

Monroe Greenstein, a retail analyst with Lazard Freres in New York, said Merry-Go-Round had fallen victim to the competitive retail environment, the sluggish economy and a teen-age population less interested in trendy garb than in the past.

``That was (Merry-Go-Round’s) original strength,″ Greenstein said. ``They were on the cutting edge of fashion.″

By hiring turnaround specialists Tom Shull and Jim Kenney of Meridian Ventures in November 1994 to run interim management, the company put less emphasis on fashion than before, Millman said.

``They started missing the mark and it deteriorated and deteriorated,″ Millman said. ``All they were able to do was chop the company up.″

Nuha Faraj, a customer at a Baltimore Cignal store Friday, said the chain was too limited for the modern shopper.

``Everything they carry is very trendy,″ she said. ``It’s geared for one set of people.″

Darrell McCullegan, who was looking for a shirt to match the vest and pants he had bought at the Baltimore Cignal store earlier, said ``I just like the style, though it’s a little too expensive sometimes.″

The company’s flagship Merry-Go-Round chain targets 15-to-25-year-olds. Cignal markets unisex sportswear for the 25-to-45 age bracket, and Dejaiz/Attivo is aimed at men ages 18 to 30.

Merry-Go-Round’s same-store sales _ those from stores open at least a year _ had not risen in three years. Earlier this week, analysts predicted the company’s liquidation after reports that it planned to sell its headquarters building.

Buyers from the company’s Dejaiz chain did not attend Magic, a merchandising and apparel show in Las Vegas last week and the company did not buy spring clothing lines, according to industry watchers.

Merry-Go-Round was founded as a hip, youth-oriented retailer in Atlanta in 1968 by Leonard ``Boogie″ Weinglass. The flamboyant Baltimore native has blamed the company’s troubles on its 1993 purchase of the Chess King chain, which it closed in November.

Asked earlier this week how it felt to watch the company’s fortunes fall, Weinglass said, ``It was heartbreaking.″