BARGAIN SHOPPER; MONTGOMERY WARD TRIES UPGRADE ON SLIM BUDGET.

Byline: Susan Chandler Chicago Tribune

When Karolyn Wangstad, vice president of trend merchandising for Montgomery Ward & Co., shows off her new fall lines of apparel, she is particularly proud of the heathery sweaters in flecked yarns of blue and brown, and the stretchy jeans with spandex.

It's not just the look she likes; it's the feel. The sweater is softer than wool and more durable than cotton because it's a mix of fibers - a fall trend Wangstad identified during a scouting trip to Europe last October.

Ward is sending fashion spotters to Europe? It may seem a strange way for a struggling retailer best known for its polyester offerings to be spending resources a year after filing for Chapter 11 bankruptcy protection.

But it's an important symbol. Fixing the retailer's once dowdy apparel offerings - making them more fashionable and improving quality without raising prices - is key if Ward's turnaround strategy is to succeed.

Just after the first anniversary of Ward's bankruptcy filing, executives say they're making real progress. Losses are narrowing, margins are widening and Ward's 290 remaining stores are cleaner and brighter. For the first time in years, its apparel offerings are slightly trendy and easy to build into outfits.

More encouraging for Ward's creditors, the sale of assets deemed not important to the company's core is going along in orderly fashion.

But some industry experts remain pessimistic that Ward can reinvent itself given the depth of its problems. The retailer is still losing money - it lost $110 million in its fiscal first quarter after a loss of $1.16 billion in the previous fiscal year - and there are few outward signs that Ward is winning customers back.

More worrisome to some analysts is that General Electric Capital Corp., Ward's largest shareholder and creditor, may not be investing enough to rejuvenate aging stores.

``Montgomery Ward is slowly choking to death because of lack of money,'' said Barry Bryant, managing director with R&R Capital Group Inc. in New York. ``This company has gone from divesting to divesting more.''

In fact, Ward's budget for capital spending is only $100 million in 1998. About half of that is being spent on drastically overhauling outdated computer systems. That leaves about $50 million to upgrade Ward's full-line stores, many of which haven't been touched in years. A big chunk of that is going to the full-scale renovation of three prototype stores in Bloomingdale, Ill.; Las Vegas; and Towson, Md.

That's a drop in the bucket compared to the $4 billion that Sears, Roebuck and Co. has spent since 1993 renovating its more than 800 full-line stores. After accounting for Ward's smaller store count, Sears is still outspending Ward by six to one.

Tom Paup, Ward's chief financial officer, staunchly maintains he has the resources to do the job. ``Our success is not predicated on redoing every store. We don't need to spend that level of capital.''

Still, there's little evidence that shoppers across the country are changing their impressions of Ward. Chris Ohlinger, chief executive officer of Service Industry Research Systems, a consumer-research firm in Highland Heights, Ky., said Ward's rankings with consumers in terms of selection, prices and service have fallen frighteningly low.

It's not something that has happened in the past year. Ward's ratings with consumers have been dropping for a decade, Ohlinger said. Back in the late 1980s, Ward was ahead of the game by promising to be a fun and exciting place to shop, but that vision was never executed and shoppers were turned off.

George Whalin, president of Retail Management Consultants in San Marcos, is another Ward critic who doubts the chain will become a viable business again. The fact that Ward hasn't tanked completely is probably due more to a strong economy than any tinkering management is doing, Whalin said.

It's clear that the pain at Ward is still not over. In late June, the retailer laid off 150 headquarters employees, leaving 1,450. And nine more stores were closed in late May, bringing the total closings to more than 100 and leaving it with fewer than 300.

Those events aren't discouraging to some Ward vendors, who see them as steps in the right direction.

``They're doing the right things, shuttering some unprofitable stores, cutting out some people in Chicago and in the field,'' said Hassell Franklin, chief executive officer of Franklin Corp., a furniture maker.

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PHOTO (Color) Montgomery Ward & Co. is still losing money despite a yearlong management effort to improve profits after filing for Chapter 11.

Hans Gutknecht/Daily News