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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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Carl Steidtmann, chief global economist for Deloitte Research, said: "The retailer is often the easiest for consumers to obtain credit from. For the retailer, in good times, the business adds to bottom-line profitability. However, retailers do have to pay for bad credit risks. It all comes to roost in bad times."

Isaac Lagnado, president of Tactical.org, a market research firm, said, "This is the final nail in the coffin of retailers like Sears and Spiegel getting into businesses like credit card management. At best, it distracts from their mission and at worst, it’s catastrophic to their balance sheet, and the default rates of 20 percent-plus are clearly unsustainable."

For Kosturos, the restructuring focus will be geared toward fine-tuning the merchandising at the different operations. He didn’t rule out the possibility, for example, of eliminating the home furnishings component of Eddie Bauer’s sales.

For now, Spiegel appears intent on keeping its Eddie Bauer division, which it acquired in 1988 from General Mills. Bauer, with 500 doors across the country, is the asset most often cited for a possible sale.

Spiegel’s chief restructuring officer noted that in the last few months, under the direction of Fabian Månsson, the operation has moved "closer to its outdoor heritage and is showing signs of traction." Månsson, former ceo of Hennes & Mauritz, was appointed president and ceo of Bauer last July, succeeding Richard Fersch.

Gilbert Harrison, chairman of Financo Inc., observed, "The Eddie Bauer name is still strong. Its merchandising and consistency of product have been extremely questionable over the last few years. Where it stands today is anybody’s guess. The number of stores that they have will create a tremendous opportunity for a potential buyer, but on the other hand it may be catastrophic if the merchandise changes are not executed properly."

Gene Silverberg, executive vice president of Hilco Merchant Resources, said, "The Eddie Bauer brand is still extraordinary. There are mitigating factors regarding the present situation, and it is not necessarily due to fault or presentation. If somebody were to buy it, pare it down to its best locations and focus on merchandising rather than expansion, it is a brand that will survive. Abercrombie & Fitch and the Gap had similar problems. These are still brands that are very good in the eyes of the consumer."
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