The History of the Merry-Go-Round Store

Once known for it’s trendy, contemporary fashion, Merry-Go-Round (MGRE) was once known to be one of the leading retailers for young men and women of ages 15 to 35. It was founded by Leonard Weinglass and Harold Goldsmith in Baltimore, MD in 1968 as they started out selling only blue jeans. At its peak, there were almost 1,000 stores spread across 39 states, most of which were located in shopping malls.

Both Merry-Go-Round and its sister chain shores, Attivo, Dejaiz, and Cignal offered a number of fashionable clothing, including prom gowns, shirts, sportswear, sweaters, denim trousers and more. Since its incorporation to a public company in 1983, MGRE showed continuous profits with its unique ability to spot and capitalize on the latest fashion trends.

Michael Sullivan in Charge of Operations

While Weinglass and Goldsmith built the first store from the ground up, Weinglass had little involvement in the company’s business operations during the 1970s, despite being chairman of the board. Goldsmith passed away in 1991.

It was Michael Sullivan who was put in charge of the operations in 1974 through his role as chief financial officer. As Sullivan made a number of impactful decisions for Merry-Go-Round to implement its policy on short-lived fashion trends, stores were popping up everywhere throughout the United States during the 1970s and 1980s.

Merry-Go-Round Store Design

During the early 1970s, all of the store interiors were black and the clothing was held in bins or metal chains. But as the trends quickly changed, so did the stores’ design. By the 90s, the interiors were brightened with neon and chrome to appeal to the younger generation.

While the changes to the stores’ design were drastic, Merry-Go-Round consistently captured its consumers’ tastes as they capitalized on fashion fads. Both MGRE and its sister stores have also created their own niche market by positioning themselves on trendy clothing, keeping them financially secure through their conservative business practices, vision for fashion trends and strategic acquisitions.

The Beginning of Merry-Go-Round

The very first Merry-Go-Round store started out selling pre-washed patched denim jeans in 1974. These were an immediate success as they appealed to the young Gen X, helping the company to move out of a recession.

MGRE was also the first to place an order with the large manufacturer of causal sportswear, Bugle Boy, which also quickly became popular among teenagers.

Merry-Go-Round then started capitalizing on the disco fashion in 1977, started by the hit movie Saturday Night Fever, selling silk shirts and three-piece polyester suits.

After the release of Urban Cowboy 1980, Merry-Go-Round brought in Western wear and fringed sleeved suede jackets.

As Merry-Go-Round’s young consumers became attached to MTV in the late 70s, the new music channel became the source of a number of Merry-Go-Round’s designs. When the King of Pop Michael Jackson first appeared on MTV with his bright red V-shaped leather jacket with 27 zippers, Merry-Go-Round sold over 50,000 similar jackets retailing at $29 each.

As rock band fashion trends became more popular, Merry-Go-Round also came out with the Union Jack sweaters with cut-off sleeves as worn by Def Leppard, the store sold over 40,000 copies at $15 each.

MGRE’s Big Mistake and How it was Fixed

While profiting from the latest, short-lived fashion trends was risky, MGRE realized in 1979 that it was not a good idea to get out now as its strategy of selling high-end clothing was highly successful. Even despite their high profit margins, they were fearful the downward economic trends of the 80s would hurt their high-end business.

So Merry-Go-Round began selling less expensive, less trendy clothing, which was a big mistake. Their net income fell almost three quarters, down to $570,000 from $2 million in 1978. Sullivan told Forbes during a 1984 interview, “We found out that customers weren’t all that price-conscious. They were more interested in fashion.” To make amends, Merry-Go-Round discontinued their lower-priced, less fashionable items and returned to their old method of selling more expensive, fashionable clothing as worn by Hollywood movie and music stars.

Returning to their old ways allowed them to open two new clothing chains: Ship ’N Shore Showcase Shops and DJ’s Fashion Center for Men. Ship N’ Shore Showcase Shops was a clothing chain that offered moderately-priced sportswear for women; it was designed for the more conservative women in the workforce. DJ’s Fashion Center for Men offered them more variety than what was previously for sale at Merry-Go-Round, attracting more fashion-conscious men, which happened to be one of the more underserved groups in the shopping malls.

Merry-Go-Round Splits into Three Divisions

Sullivan was then promoted from chief financial officer to chief executive office during the early 1980s. He directed the company to divide into three different parts.

1. The Merry-Go-Round division. Considered to be the largest with over 200 stores.
2. Menz division. The second largest division that housed both the rapid-growing DJ’s chain.
3. Shop ’N Showcase Shops division. Smallest division that housed the Ship ’N Shore Showcase Shops chain.

It was in 1983 when Merry-Go-Round decided to go public, with annual sales of $75.5 million, a net income of $3.5 million and $.88 a share. In 1984, the net income soared 108 percent to $7.3 million at $1.79 a share with 247 stores in 29 states:

• 204 Merry-Go-Round stores
• 33 DJ’s Fashion Centers for Men stores
• 10 Ship ’N Shore Showcase Shops

The Continued Growth of MGRE

By the mid-1980s, MGRE’s sales were at their highest, opening anywhere between 20 – 25 new stores each year. Much of its growth was attributed to their purchasing and renovating old, unsuccessful clothing chains. In 1984, Sullivan told Barron’s “If we can find an attractively priced clothing chain of 15 to 20 stores with suitable locations, we would probably acquire that chain and convert it to our type of operations. MGRE then added its sister chain, Attivo, a clothing chain that appealed to young, fashion-conscious men, to its Menz division.

But while the Menz division prospered, the sluggish women’s clothing market took a massive hit on the Ship ’N Shore division’s sales. In response to the loss in revenue, MGRE replaced the conservative women’s work apparel with a new chain called Cignal, selling higher priced European style sportswear for both men and women.

Growth in the Men’s Department and Expansion into Manhattan

Forbes ranked MGRE as number 34 on its list of 200 best small companies in America, a five-year average return on 29.1 percent. The clothing company also continued to expand its profitable Menz division, buying the 28-unit sportswear chain Casey & Osh in 1988 to convert it into a new chain for its chain of Attivo stores.

That same year, the Merry-Go-Round division also entered the Manhattan market, opening a brand-new new 3,500 square-foot store in the East Village. By March of 1988, the total number of MGRE stores grew to 459, including the Casey & Osh acquisition.

The Start of Boogies Diner

In 1989, a new, innovative combination restaurant and clothing store called Boogies Diner was introduced in a Chicago test market. After a large success, the store went national with the grand opening in Washington, D.C. in 1990. This diner-clothing store concept was the fruitful idea of MGRE’s founder and chief executive officer, Leonard Weinglass. With a colorful personality, it served as the basis for the character of Boogie in the 1982 film Diner.

Weinglass also privately opened another Boogies Diner in Aspen, CO and gave the idea to MGRE for free. Sullivan told the Washington Post, “We want to be on the cutting edge of things for young people, and we think this is it. This is retail overlaid by a theater aspect. The diner brings in people who would not normally be attracted by the retail and the retail attracts the diners.” Fully dependent upon the profitability of the Washington D.C. store, the company was planning to open more Boogies Diners in Los Angeles, Las Vegas and New York.

According to the New York Times, MGRE’s success was partly attributed to their organized inventory tracking and management as well as the consistency of the company’s top management. All three heads of each MGRE division, Paul D. Levine, Stuart M. Lucas and Ken Rodriguez all started as store clerks in the 1970s. A retail analyst explained, “There’s a lack of buying talent in the young men’s business, and they seem to have it.”

The I.O.U. Brand

Ever heard of the I.O.U. brand? This was considered one of the 1980s most popular fashion brands. It also happened to be launched as MGRE’s first private label, under Stuart M. Lucas.

The I.O.U. brand, still around today, offers mid-priced casual clothing for teenagers. By 1990, the brand accounted for 25-30 percent of MGRE’s annual sales. Even a number of counterfeit clothing items were illegally made from I.O.U.’s popular T-shirts, sweaters and shorts.

But in 1992, MGRE filed a lawsuit against United Outlet Centers, a New York-based discount store, claiming they profited off of a number of counterfeit I.O.U. goods. Both companies settled for an undisclosed amount of money along with the promise for United Outlet Centers never to violate the trademark again.

MGRE’s Race Scandal

In 1991, MGRE was accused in a minor race scandal when one of their customers noticed the sales clerks at all stores wrote down the customers’ ethnicity on the backs of their personal checks. This led to a front-page story on the cover of the Boston Globe on April 3, 1991. The next day MGRE announced the practice would be discontinued and explained the purpose of noting each customer’s race was for identification purposes, in case the check didn’t clear.

MGRE’s Rise in Stock Prices

Again, this certainly wouldn’t fly today. But in the 80s, MGRE only got a slap on the hand for their race-noting practices because profits continued to soar as the number of soars grew to 600 by 1990. Stock prices went from $6 to almost $27 in only 18 months.

But one of the company’s founders and CEO Weinglass, along with a “key partner” sold $32 million of their MGRE stock in 1989 and another $43.8million in 1990. This caused a great deal of scrutiny among the investment community that MGRE’s had reached its peak. Market analysts also predicted that when the store’s acquisitions reached the sales levels of their older stores, maintaining their growth trend would be difficult. To their surprise at first, MGRE’s unprecedented growth continued through February of 1992.

The Acquisition of 88 NET Work

But unfortunately, this was it. Profits fell by 39 percent that year, partially due to the decline in the women’s clothing market and heavy discounts during the Christmas season. MGRE responded to this dip by implementing a number of measures, including a 45 percent salary cut for top offices, 7 percent inventory reduction and careful control of business expenses. During the enterprise’s annual meeting, Sullivan explained his ten-year plan to boost business through expansion, doubling the number of MGRE stores from 900 to 1,800.

True to their word, MGRE purchased the Worth retail chain of 88 NET Work women’s clothing stores in June of 1992 for an undisclosed price. While MGRE kept the NET Work name, they added a line of men’s clothing to the pre-existing line of mid-priced women’s clothing. In just two weeks, MGRE was then considering to purchase three units of the Baltimore-based Hamburgers clothing chain to supplement its Boogies Diners chain. Speaking of, they opened two more stores as well as a prototype called Merry-Go-Round Fashion Cafe, with the Las Vegas location reaching an all-time high for company sales records.

Acquisition of Chess King/Garage

In August of 1992, MGRE stock then trended upwards, after Kidder Peabody & Co. gave them a positive recommendation. While the financial results of that year were mixed, net sales only increased 15 percent, while the number of stores increased 20 percent.

In 1993, MGRE continued its expansion, purchasing the Chess King/Garage men’s clothing stores from Melville Corp. also for an undisclosed amount. Market experts also seemed more confident of MGRE’s chances for success throughout the 1990s. One analyst explained, “[Merry-Go-Round Enterprises Inc.] is as good as anybody at identifying what’s hot, getting it to the store, and selling it.”

The Beginning of the End

While the national corporation was best known for identifying and capitalizing on short-lived fashion trends, especially for men, all good things must come to an end. In January 1994, MGRE filed for bankruptcy, liquidating its remaining 536 stores around the country. Even before then, it was scaling back its operation by closing stores and a whole division. They made all efforts to reorganize, however, lenders refused to extend money to the company and some of its suppliers as well as stopped shipping merchandise.

Michael Kempner, one of their company spokesmen, explained, “The company had explored all other options and could not get the support of its {suppliers} and creditors, so they could not get the financing needed to move forward. He also explained that they would start an “orderly wind-down.” But unless if another major retailer would agree to purchase all of its divisions, all 7,000 of Merry-Go-Round’s employees would lose their jobs.

Too Late to Fix the Mistake

The reason for their hefty decline in sales was due to their consumers’ growing reluctance to buy their apparel. They moved into selling wholesale baggy, hip-hop clothing, however, America’s teens wanted the grungier look. This giant mistake turned into a giant bankruptcy case as well as its tiny target market dwindling by the 1990s.

But before they could even think about making amends, the company was far too big and it was too late. Weinglass had even stepped out of retirement to bring its merchandise strategy back on track, but again it failed; they marketed ‘70s retro clothing when young adults still wanted the grungy look.

Lesson Learned

While Merry-Go-Round was considered one of the most successful retail chains during the 70s and 80s, even large, public corporations can fall within a year. Failed attempts at listening to their consumers has led them down the path of bankruptcy, a lesson well learned for everyone.

Did You Wear Merry-Go-Round Clothes?

If you have some old photos of you and your friends wearing the 80s retail giant’s clothing, we’d love to see! Whether it’s the red leather jacket from Michael Jackson’s appearance on MTV or Def Leppard’s sweater, please don’t hesitate to share it in the comments section below!