Credit Card Shortfall Forces $3B Spiegel Inc. To File for Bankruptcy

Spiegel Inc. on Monday succumbed to its credit crunch, filing for Chapter 11 bankruptcy court protection in Manhattan.

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Credit analysts worry that the delay will erode Spiegel’s customer base. Until a new service is ready for use, customers will have to pay for Spiegel purchases with an acceptable bank or charge card issued by a different financial institution, a check or money order, or cash at retail sites such as its Eddie Bauer nameplate.

According to Spiegel’s 2001 annual report, which it delayed filing with the Securities and Exchange Commission until February 2003, preferred credit card receivables serviced in 2001 were $2.3 billion, representing 3 million active accounts. The filing said that 41 percent of total sales were made with the company’s preferred credit cards, which includes 21 percent of Eddie Bauer net sales; 73 percent of Spiegel’s and 59 percent of Newport News’ sales. The lower percentage of sales on the Eddie Bauer card reflects the higher percentage of retail store sales at the division.

A Spiegel spokeswoman said that 34 percent of total sales were made with the firm’s preferred credit cards in the first nine months of 2002. The company has not yet reported fourth-quarter results.

For 2001, Spiegel lost $587.5 million, or $4.45 a share, against income of $120.8 million, or 92 cents, in 2000. Sales fell 15 percent to $2.97 billion — about $2.3 billion in apparel — from $3.53 billion. Sales fell at all three divisions: the core Spiegel operation was down by 12 percent to $734 million from $833.4 million; Bauer by 9 percent to $1.6 billion from $1.75 billion, and Newport News by 6.4 percent to $448.9 million from $479.1 million.

Of course, like moderately oriented department stores, big general-merchandise catalog operations haven’t fared well in the last several years. Several of the multihundred-page catalogs that used to be sent to homes — Sears, Roebuck & Co.’s and Montgomery Ward’s, for instance — are no longer in existence, suggesting that consumers have changed the way that they shop. Sears sends smaller specialty catalogs to its customers, while J.C. Penney’s catalog has showed signs of stress lately.

According to Kosturos: "Our sense is that it is more of a credit card issue than a catalog problem. The big bucks are not out there anymore."
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