(FORTUNE Magazine) – Human history has produced exactly one Johann Sebastian Bach, one Sir Isaac Newton, and–for better or worse–one Leonard “Boogie” Weinglass. Weinglass is a true original–a streetwise Baltimore bad boy who grew up to be, by turns, hippie, founder of a successful retail chain, multimillionaire, jet-setting Florida playboy, unorthodox Aspen family man, and spectacular failure.
What a ride. How fitting too that the trip was courtesy of a company he chose to call Merry-Go-Round Enterprises. Weinglass built up the mall-based purveyor of trendy teen fashions, and once it was on a steady course, went off to play and enjoy his millions. The business he’d set in motion, meanwhile, grew furiously into a $1 billion nationwide chain with nearly 1,500 stores and 15,000 employees. Merry-Go-Round became a Wall Street darling, and bigtime players like Fidelity Investments, Bear Stearns, and Donald Trump tried to horn in on the action.
But a misstep here, a bad break there, and the magic can disappear fast. So it was with Merry-Go-Round, which began to falter in the early Nineties. Weinglass returned to active duty to try to rescue the company and found himself helpless to slow the slide. It took little more than two years–until this past February, to be exact–for an enterprise built over 25 years to melt down to absolutely nada. Shareholders lost every penny; thousands of employees lost their jobs. All that remains is the question asked by 22-year company veteran Gary Gillan: “How could something so strong go so wrong?”
Merry-Go-Round’s demise provides a veritable Gray’s Anatomy of business failure. It’s almost as if the company worked its way through a checklist of classic mistakes, sealing a fate that maybe didn’t have to be. Growing distance from customers, a disastrous acquisition, an insular corporate culture, a string of top management shakeups–it’s all here. Throw in, as well, the tragic and untimely death of one of the company’s principal executives. Still, from Boogie wonderland to Boogie blunderland, this is Weinglass’s twisted tale most of all.
His story begins in the 1950s in Baltimore. As a student at Forest Park High School, Boogie was a disciplinary problem and a frequent truant. He was also a major fixture in a teen scene that centered around hanging out in diners and eating gravy-soaked french fries. The crowd he ran with included Ellen Cohen, who later achieved fame as Mama Cass Elliot of the rock band the Mamas and the Papas, and Barry Levinson, the Academy Award-winning movie director. Levinson, in fact, chose to pay homage to the Baltimore of his youth in his first feature film, the classic Diner. And Robert “Boogie” Sheftell, the womanizing prankster with a heart of gold played by actor Mickey Rourke, was patterned directly after Leonard “Boogie” Weinglass. “It’s about 80% accurate,” says Weinglass of his celluloid counterpart.
Diner days were just the beginning for Weinglass. As the 1950s flowed into the 1960s, as doo-wop gave way to mop tops, Weinglass found himself working as a traveling clothing salesman. He hankered to be his own boss, though, and in 1968 he opened the first Merry-Go-Round on Peachtree Street in Atlanta, smack in the heart of that town’s hippie district. While music by Vanilla Fudge and Steppenwolf rattled the racks, Weinglass sold miniskirts, tie-dyed T-shirts, Sgt. Pepper jackets, and the occasional pot pipe, as well as loads of bell-bottoms by companies such as Landlubber and Live Ins. “All these merchants in three-piece suits and ties couldn’t figure it out,” says Weinglass. “I did $500,000 my very first year.”
By all accounts, Weinglass was a natural at picking fashions. People are vastly at odds in their assessment of his character these days–he’s still heroic to some and hapless to others–but nearly everyone concedes that he was a great merchant. “I had a flair for picking out clothes,” he says. “My edge was that I stayed single. When you’re single and you’re out in the scene, you know what people are wearing.”
Besides bachelorhood, Weinglass readily concedes that a crucial edge was also provided by his business partner, Harold Goldsmith. Goldsmith was yet another of Weinglass’s illustrious high school buddies. They were quite the odd couple. Goldsmith was quiet and studious, his one goal in life to be a billionaire. The two had become friends when Weinglass backed up Goldsmith in a scuffle at Benny’s Poolroom in Baltimore.
Goldsmith brought much-needed management discipline to Merry-Go-Round. “Boogie was the wild man; Harold was the businessman,” is how one longtime associate describes the partnership. Goldsmith was a master dealmaker who negotiated everything from bank financing to the acquisition of other small clothing chains. Useful too was the fact that Goldsmith’s family was in the real estate business. It gave Goldsmith the foresight, in the early Seventies, to recognize that malls would be the wave of the future. He set about cutting deals with landlords to get Merry-Go-Rounds into the best locations on favorable terms.
In 1982, Weinglass and Goldsmith decided to pull some personal profit out of the business and devote their time to other pursuits. Both remained on Merry-Go-Round’s board, however, and kept a hand in the company, which went public in 1983 with sales of $76 million. Goldsmith proceeded to do what people like Goldsmith do: He bought a local bank in Baltimore. And Weinglass did what people like Weinglass do: He moved down to Florida, to Turnberry Isle, a playground for rich folks like actor Jack Nicholson and tennis star Jimmy Connors. “I had never seen so many beautiful women,” says Weinglass.
Merry-Go-Round, meanwhile, continued to prosper, carrying on with the casual culture that Weinglass had fostered. The company phone directory, alphabetized by first name, was a prime example. (Want to call the vice chairman? Look under “B” for “Boogie.”) But that only scratches the surface: Hiring practices continued to reflect Weinglass’s preference for “street kids” over “suits.” Choosing merchandise from the gut was stressed over market research.
The new generation of street kids bet big and bet right on a whole string of fashions including Michael Jackson Beat It jackets in 1983, parachute pants in 1984, and Madonna bustiers in 1985. Recalls Bob Gelb, a former Merry-Go-Round buyer: “When Madonna first hit it big, we saw her in a bustier on a poster and jumped on the fashion for stores across the country.” The country, meanwhile, was becoming increasingly familiar with Merry-Go-Round. The stock price zoomed nearly 300% from 1985 to 1990, and Forbes magazine named it one of the 25 best companies for the period.
Weinglass himself went a bit more legit during this time too. One of the beautiful women he met at Turnberry Isle became Mrs. Pepper Weinglass. The couple moved out to Aspen, built the Merry-Go-Ranch, and raised horses, goats, chickens–and three kids.
He also tried his hand at a couple of new retail notions, one of them being Boogie’s Diner. This was a combination 1950s-style diner, clothing, and memorabilia boutique. While out in Aspen, Donald Trump dropped by Boogie’s Diner and apparently liked what he saw. He met with Weinglass to discuss opening one in the Trump Tower in Manhattan. “I’m going to make you an offer you can’t refuse,” the Donald reputedly told Weinglass. Dressed in jeans and cowboy boots, hair in a ponytail, Weinglass replied, “I’m not interested.”
When Weinglass finally decided to expand the Boogie’s Diner concept, he chose to do so under the Merry-Go-Round Enterprises umbrella. Starting in 1989, six of them opened in various cities including Chicago, Las Vegas, and New York. It was a profitable new venture. No Boogie Blunders … yet.
But then came disaster–it struck out of the clear blue sky, literally. In February 1991, Harold Goldsmith, Merry-Go-Round’s chairman and Weinglass’s long-time business partner, was killed when the small private plane on which he was a passenger crashed while landing at Aspen’s airport. Not long afterward Merry-Go-Round had its first month of declining sales in nearly three years. Fundamental changes in the fashion business were beginning to bubble to the surface.
From a sheer numerical standpoint, Merry-Go-Round’s target market–15- to 24-year-olds–was shrinking. Mall traffic was down, and the whole retail clothing industry suffered from the lack of any clear fashion trend. A kind of antistyle sentiment prevailed among the nation’s teens, one that some retailers would later capitalize on with the grunge look, consisting of worn flannel lumberjack shirts and such. Merry-Go-Round confronted these critical shifts in the market with naivete, even arrogance. In doing so, the company made its first big mistake: It lost touch with its customers.
Merry-Go-Round’s merchandising style had always been to pick a hot fashion item and run like mad with it. That had worked fine when the company was smaller, the clothing market sound. But by 1992, Merry-Go-Round was a national chain of more than 800 stores facing the inherent challenge of meeting the needs of a geographically diverse customer base.
Nevertheless, Merry-Go-Round clung to its big-bet mentality, placing one this time on hip-hop fashion–brightly colored, baggy clothes favored by rap stars. Other successful retailers–the Gap, for instance–rode out the market turbulence with the aid of sophisticated research techniques to achieve the right merchandise mix. None of that for Merry-Go-Round; it simply bet that every last customer across this great land would want to dress like L.L. Cool J. “Hip-hop sold well in places like Newark and Detroit,” says former buyer Gelb. “But you went to Beaumont, Texas, and everyone just laughed.”
The company’s problems were soon compounded by a disastrous acquisition. Merry-Go-Round had previously bought and successfully integrated into its system a number of other clothing chains. But circumstances were vastly different by 1993, when Melville Corp. offered up its 450-store Chess King clothing chain. Merry-Go-Round had refused to bite on two previous occasions; Goldsmith, in fact, had weighed in as a decisive dissenting voice. But now Melville was back, asking the low, low price of $40 million. With one eye on Wall Street, the other on a moribund fashion market, the chance to grow by 45% overnight held the allure of a siren song.
Disregarded were the facts that Chess King’s sales performance had been lackluster and its goods were inferior. The effort required to absorb a large, underperforming chain overstressed Merry-Go-Round in everything from merchandising to management to data processing. Worse still, Chess King was in the exact same youth-oriented niche–and even in some of the same malls–as Merry-Go-Round. Once the business went south, the new chain would act like a lead sinker. “It was a major, major, major, major mistake,” says Weinglass, who signed off on the deal as chairman. “I could kick myself in the butt.”
By the autumn of 1993, Merry-Go-Round’s mistakes were starting to catch up with it. The company was headed for the first loss in its history, $46 million for the fiscal year. The board took two giant steps to try to reckon with the mistakes of the recent past. First, it convinced Weinglass he should return to active duty. This was an emotionally fraught move, equal parts nostalgia, desperation, and fealty. Weinglass was hesitant about reentering the fray, but Merry-Go-Round was his baby, and his stock, worth $40 million, was at risk.
The second of the board’s big steps was to take a $35 million write-down on unsold inventory. The company’s main warehouse was stuffed to the gills with hip-hop wear, wide-leg jeans, and other fashion miscues. The write-down, however, put Merry-Go-Round in violation of its bank loan covenants. This coupled with a disastrous Christmas selling season, and Merry-Go-Round found itself in a terrible cash crunch. Shortly into the new year of 1994, the company filed for protection under Chapter 11 of the bankruptcy code.
Faced with a deepening crisis, Weinglass didn’t exactly morph into Jack Welch. At one point, he met with the stern-faced bankers wearing his trademark boots, jeans, and ponytail (now considerably grayed). Mostly Weinglass just tinkered, making penny-ante moves such as trying to shift the chain’s merchandising mix more towards women’s wear.
He fell back on his old buying style too, snapping up whatever struck his fancy. Only now he’d been out of the day-to-day business for 12 years. As a merchant, he’d lost his touch. “He thought he could buy anything and it would sell. It was sad to watch,” recalls Julie Kramer, a former Merry-Go-Round buyer who worked closely with Weinglass upon his return. “Here’s this guy who started this megacompany. I just kept thinking, ‘This poor man. He needs to go back to his ranch.’ He was way out of his league.”
Like other company founders–Steve Jobs at Apple Computer is a classic example–Weinglass found that maverick entrepreneurs don’t necessarily have what it takes to run a business once it reaches a certain size and complexity. “I always thought I was a pretty good merchant,” admits Weinglass now. “But I was helpless in a crisis this deep.”
His supporting cast wasn’t up to the task either. The company was forged in his image, after all, and the result was a dangerously insular culture. Problems that hadn’t been manifest before began to show up now that everything was unraveling. “Good sales hide a lot of evils,” is how one former exec puts it. Longtime employees who had grown up in the organization, Boogie’s favored “street kids” among them, often lacked the downside experience that comes with a more varied retailing resume. The go-go buying style, meanwhile, had encouraged a lack of accountability.
As a result Merry-Go-Round spent the initial period of its bankruptcy drifting and dazed, unable to adjust to changed circumstances, unable to make decisive moves such as quickly closing underperforming stores. All the while the company was bleeding money into the troughs of lawyers, financial advisers, and other bankruptcy professionals.
It was a painful, bewildering time. Mike Sullivan, who had stepped aside as CEO when Boogie returned, decided to quit the president’s job near the end of that first momentous year of bankruptcy. “I helped build this company,” he told a group of fellow employees. “I don’t have the heart to tear it down.” Not everyone was so emotional. Along with executives and thousands of hourly employees, Merry-Go-Round also had creditors–financial institutions, stockholders, clothing vendors. As the company drifted in bankruptcy, they became increasingly agitated.
But here, too, matters would take an unforeseen twist. The cast of characters who made up Merry-Go-Round’s creditors began to alter drastically over the course of that first year of bankruptcy. Eventually, instead of owing money to banks and clothing makers, the company owed money to vulture investors. They were gobbling up every bit of equity and debt in sight. “All of us were thinking, this is just a blip,” says Herb Stiles, an investment manager with T. Rowe Price who specializes in distressed companies. “What a great opportunity to buy a good company that had stumbled. Let’s get in, and get in cheap.”
While some of them bought up the stock, others concentrated on the $225 million of so-called trade credit debt owed by Merry-Go-Round. They bought up the debts held by various creditors, everything from $1.8 million owed to Guess to $135 owed to Roto-Rooter Services. Such companies were often happy to recover a portion of what they were owed; the vultures, in turn, paid something less than face value for a debt they hoped would pay out at 100 cents on the dollar, plus interest, when Merry-Go-Round emerged from bankruptcy.
A feeding frenzy was soon in full swing, with small-time vultures snapping up tiny debts for as little as 10 cents on the dollar. They’d package the debts together, then sell them to larger investors. At the very top of the food chain perched the king of the vultures: Fidelity’s distressed-company investing arm. Fidelity paid as much as 86 cents on the dollar for $90 million worth of trade credit and also bought up five million shares of stock, making it Merry-Go-Round’s single largest creditor.
That the vultures would invest so heavily was a real vote of confidence in Merry-Go-Round’s survival prospects. But it came at a price, for soon power would begin to shift toward the creditors. Fidelity, for example, wanted to protect its investment, and as the largest creditor it now had quite a bit of leverage with Merry-Go-Round. It started pressing the board to consider bringing in turnaround management and even proposed a candidate: Meridian Ventures, a Hilton Head, South Carolina, firm with which Fidelity had enjoyed a good working relationship during the Macy’s bankruptcy.
And what of Weinglass? Stepping down was just fine by him. Up to this point he’d lived his life as a kind of bad-boy twin of Forrest Gump, enjoying the excesses of each successive decade in America, the 1950s through the 1980s. This 1990s era-of-reckoning stuff held no appeal. It should be noted, in fact, that he’d already been casting around for a way to escape back to Aspen. “I knew we were in big trouble, and I couldn’t wait for the ordeal to be over,” he says. “All the stress and pressure was making me sick.”
Enter Thomas Shull, CEO of Meridian Ventures and new CEO of Merry-Go-Round, chosen to lead the company into 1995, its second year of bankruptcy. He was, in essence, the anti-Boogie: a West point and Harvard B-school graduate, Army major, White House fellow, ex-McKinsey consultant.
Shull got right down to business. Relying on the kind of sophisticated financial levers that turnaround experts favor, he determined that Merry-Go-Round was on course to lose $50 million for the year and was quite possibly just weeks away from liquidation. He swiftly closed 217 stores and laid off 2,100 employees. His moves stopped the bleeding, and later he was able to obtain much-needed financing.
But it was becoming increasingly obvious that this was no quick, easy turnaround. Every move the company made started to receive intense scrutiny from the various creditors and their lawyers. And they had a growing concern. Cost cutting was all well and good, but for Merry-Go-Round to recover fully–and for them to get a nice return on their investment–it was also clear that the company needed a merchandising strategy that would boost sales. Large, powerful creditors, including onetime allies such as Fidelity, became increasingly critical of Shull’s performance. Never mind that Shull had not billed himself as anything but an operations guy and had stressed the need for a chief merchant as well.
Shull worked with his team at Merry-Go-Round to try to find direction on the fashion front. But this wasn’t exactly his strong suit. Here was this self-proclaimed “fairly buttoned-down type” in his 40s trying to divine the tastes of mall-hopping teenyboppers. He drafted a mission statement: “Achieve profitable sales growth by being first to market in selected trend fashions for the customer with a young attitude.” And he commissioned some formal market research, never a big priority at Merry-Go-Round–unless you count as research the time Weinglass tried out a vendor’s roller skates by careening through the halls of the corporate headquarters in suburban Baltimore.
All the while, the creditors were growing increasingly jittery. They second-guessed Shull’s every management move. Shull, in turn, felt restricted. Tempers exploded, and the heat can still be felt more than a year later. “Shull certainly wasn’t a good merchant,” says Stephen Selbst, a lawyer who represented the stockholders during the bankruptcy. “He may not have even been a good turnaround guy.” Answers Shull: “I wasn’t part of the bankruptcy club. This was an unholy alliance among all the creditors against management.”
By July 1995, Shull was gone, and the creditors had their merchant CEO in Richard Crystal, a veteran retailer from the Macy’s organization who had launched such specialty clothing stores as Aeropostale. He took over a chain with roughly 1,000 stores and 8,000 employees.
Crystal was Merry-Go-Round’s fourth CEO in 18 months. This breakdown in continuity all but crippled the company’s management. There had been this needless flip-flop too: merchant CEO, operations CEO, back to merchant CEO. Whether blame lies with a weak board, impatient creditors, or merely vagaries born of panic and confusion, a key to the company’s earlier success had been lost along the way. In hindsight, it seems almost incredible that it could have been overlooked. Merry-Go-Round tended to do well when merchandising (wild man Weinglass) and operations (businessman Goldsmith) worked in tandem.
Things didn’t start off on an auspicious note for Crystal either. Where Weinglass had been eminently approachable and Shull had won a measure of respect for his diligence, Crystal was perceived as arrogant and aloof. Employees took to calling him “Bugsy” behind his back because they thought he looked like an old-time gangster in his dark suits and slicked-back hair.
Personal style aside, Crystal needed to work some merchandising magic. Merry-Go-Round essentially had to have a joyous Christmas 1995 selling season–or die. One of Crystal’s proven talents as a merchant was that he knew how to develop private labels for stores. Back to the wall, he decided to build up Merry-Go-Round’s own labels and lessen reliance on big-name brands. It was a risky move, one he has been widely criticized for, since it can take as long as 18 months for private labels to really take hold with customers.
The Christmas season came and went, and the chain posted respectable sales figures. But they weren’t quite good enough to induce the banks to loan Merry-Go-Round the money to keep going. Thus, on February 2, 1996–Groundhog Day–the company announced it was going down for good. Crystal, flanked by lawyers and security personnel, explained the situation to employees in a terse address. “You’re welcome!” some of them called out periodically–bitter that Crystal hadn’t even bothered to thank them for their years of service.
Within days, Merry-Go-Round stores throughout the country were liquidating their merchandise. Flamboyant until the end, the company wanted to post day-glo-color GOING OUT OF BUSINESS signs. Lawyers for the mall landlords shot that down in a hurry, though, fearing it would draw attention to failed businesses within the various properties.
By now Merry-Go-Round has almost completely melted away. Most everything–clothing, computers, forklifts–has been sold. Its headquarters and warehouse were bought by May Co. for $19 million. About all that remains to be sold are the so-called trade names, such as I.O.U. and Blue Zone, which were private labels, and the name Merry-Go-Round itself. The proceeds will help pay the costs of shutting the business down, including employee severance. The creditors, from Fidelity down to individual stockholders, expect to recover nothing, zero cents on the dollar.
It’s almost unheard of for a company as large as Merry-Go-Round to disappear so fast. Among ex-employees, there’s a strong sense that this didn’t have to happen. What if Goldsmith had been around to nix the Chess King acquisition a third time? What if the company hadn’t lost its customer focus and had had the benefit of greater management continuity during the crisis?
As for Weinglass, he says the whole affair has left him sad and full of regret. Any hope that he will ever recapture his flair as a merchant has vanished. “I’m beaten down,” he says. “I have no aspirations to create the next chain of anything.”
Weinglass is 55 now. He’s made and lost many millions, has watched the retail empire he started crumble to nothing. He still owns one last Boogie’s Diner, though, in Aspen. It’s decorated with mementos of Baltimore and the Fifties–happier times. And that’s where Weinglass can be found these days, sipping Cokes, greeting customers, just hanging out. Round and round, up then down, and Boogie is back–right where he started.
REPORTER ASSOCIATE Therese Eiben