The Cupertino Courier

State turns the heat up on Macy's

Attorney General investigates Federated's actions at Vallco

By Pam Marino

The California State Attorney General's office is investigating Federated Department Stores' actions at Vallco Fashion Park for possible civil anti-trust violations, Cupertino City Manager Don Brown announced Monday.

The site of the Emporium Department Store, empty for 18 months, was turned into a Macy's Clearance Center overnight after competitor Dillard Department Stores expressed interest in purchasing the building from Federated, Brown told reporters at a press conference.

"In my opinion, this action was done intentionally to keep a competitor out of the Santa Clara County market. Federated is well represented with its Macy's stores in the malls at Stanford, Sunnyvale and Valley Fair," Brown said in a formal statement.

Federated spokeswoman Carol Sanger called that charge "ludicrous." The fact that Dillard's had an interest in the site at the time Federated opened the clearance center was a coincidence, Sanger said.

Since the Emporium closed in January 1996, sales tax revenue to the city from Vallco has declined 15 percent, and the opening of the Clearance Center, with low-quality merchandise, is sending Vallco into a downward spiral, Brown said.

"I don't think the mall has another year of this kind of activity," he said.

When Federated, the largest department store chain in the United States, acquired the Broadway stores in 1995, which included Emporium, the Attorney General's office investigated the purchase for possible monopolization problems, and later entered into a settlement with Federated to foster competition. Under the agreement, Federated sold some of its California stores to competitors.

At the City Council meeting on Monday night, Deputy Attorney General John G. Donhoff told the Council that Vallco was not included in the settlement because Federated officials assured his office that the Emporium site would be sold back to the mall's owners as early as January or February 1996.

"That didn't happen, and until Don (Brown) contacted me I didn't know that," Donhoff said. He said he was "taken aback" by pictures the city had taken at Macy's Clearance Center, showing damaged furniture and other examples of merchandise at the store. "It did not look like an appropriate department store use," he said.

When asked why the sale didn't go through, Sanger said "I really don't know."

Federated's actions, which have kept out a competitor that would go head to head with Federated's Macy's stores at other area malls, will be looked at both "within the agreement and outside the agreement," Donhoff told the Council. He said possible remedies could include holding Federated in contempt for violating the terms of the settlement, or taking Federated to court to force the sale of more stores.

A representative from Dillard's, which is based in Little Rock, Ark., told the Council Monday that the chain was anxious to open a site at Vallco and enter the Bay Area Market.

There was no indication of how long the investigation might take.

Cupertino's decision to appeal to the Attorney General's office came after repeated attempts by the city to speak with Federated officials about their long-term plans for the Emporium site, Brown told reporters. He said Federated never returned phone calls, even after the city asked the State Department of Trade and Commerce to intervene.

Two weeks ago the city sent Federated officials in Cincinnati a letter informing them of the press conference and presentation to the City Council, offering them a chance to participate. Federated's general counsel, Dennis Broderick, spoke with Brown Monday morning, saying that the matter is being discussed at "the highest levels" of Federated. He told Brown he would contact him again later this week.

In a related matter, a spokeswoman for Teachers Insurance and Annuity Association (TIAA), the pension fund that is the holder of the first mortgage on Vallco Fashion Park, told the Council that it has begun foreclosure proceedings against Heitman, the mall management company that took over ownership of Vallco in 1995. Kathleen Nelson said TIAA expects to complete the proceedings and take over ownership of the mall by the end of this year. She said negotiations are already under way with a management company to renovate Vallco, and ensure that a high-end department store occupies the Emporium spot.

The goal, she said is to "once again place Vallco as a premier center in its market."

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