Spiegel Told to Cut Up its Cards

Spiegel Inc. (Downers Grove, Ill.), the catalog company and parent of the Eddie Bauer retail operation (Redmond, Wash.), has been ordered to liquidate part of its ailing credit-card business, according to a filing this week with the Securities and Exchange Commission (SEC).

A spokeswoman said Spiegel will continue to seek a buyer, but if one isn't found by April 30, 2003, the retailer will have to divert millions of its own cash each month to repay security holders. It has been called “questionable” whether the company has adequate cash flow to handle the so-called “pay-out event.”

The U.S. Office of the Comptroller of the Currency (OCC), which regulates banks, told Spiegel to immediately stop issuing new Visa and MasterCard credit cards through its First Consumers National Bank (FCNB) division. Spiegel must also not accept new charges from existing cards, which can be used to purchase good other than the retailer's merchandise, after April 1.

Spiegel has been trying to sell the FCNB unit for more than a year, after collection troubles arose and the OCC ordered Spiegel to liquidate the bank division and its credit card portfolio if a buyer could not be found by the end of last month.

FCNB cards account for roughly $1.3 billion in receivables a year. The company's private-label credit cards, meanwhile, accounted for about $2.3 billion in annual receivables. Spiegel said it will retain that business, which it considers “extremely important” to catalog sales. The cards can be used only to charge merchandise from Spiegel and its Eddie Bauer and Newport News units, and generate 41 percent of Spiegel's revenues.

Earlier this month, Spiegel revealed it had defaulted on $700 million in bank loans and cfo James Cannataro resigned “to take a job with Nintendo of America Inc..” Spiegel subsequently named James Brewster, former cfo at its Newport News unit, as its new cfo.

Filing for Chapter 11 bankruptcy reorganization seems unlikely, however, because that would mean the Otto family of Germany, which owns all of Spiegel's voting shares, would lose control of the company to creditors.

The 83-year-old, 538-unit Eddie Bauer operation, in the meantime, seems in a position to weather the storm, according to many observers. “Eddie Bauer is not going to fall by the wayside,” said Kurt Barnard, president of Barnard's Retail Consulting Group (Upper Montclair, N.J.). “It's a well-established, very entrenched and respected brand. I have absolutely no doubt that, one way or the other, it will survive.”

One possible future for Eddie Bauer is to be sold to another retailer looking to strengthen its offerings of outerwear and upscale casual clothes. “In the position that Spiegel is in — you've got a valuable asset and need to raise money — you're going to do whatever you can to raise money,” said Robert Spector, Seattle-based retail observer and author of the 1994 book “The Legend of Eddie Bauer.” “The Eddie Bauer brand has value — more value, I would think, than Spiegel itself as a brand.”

“It's the best possible time to make an acquisition,” Barnard said. “Prices are low. You can get away with murder.”