Boscov’s Files for Chapter 11

Discussion
Aug 06, 2008

By George Anderson

Boscov’s, a regional department store chain headquartered in Exeter Township, Penn., has filed for Chapter 11 bankruptcy protection. As part of its reorganization the company is closing 10 of its 49 stores and has reached an agreement to borrow up to $250 million from a group of lenders including Bank of America.

The chain blamed its problems on decreased consumer spending brought on by increased fuel and food costs along with the collapse of the housing market in the six states where it operates stores. Boscov’s is closing five stores in Pennsylvania, three in Maryland and one each in New Jersey and Virginia.

Last week, Boscov’s CEO Ken Lakin admitted that the chain faced challenges but expressed optimism about its ability to meet them. He told the Reading Eagle, “Sales are weak overall, particularly in the home store, which you can understand: People are not buying houses, they’re not buying sheets or mattresses or beds. As gas prices have gone up, sales have gone down, But we’re not collapsing at all.”

In addition to the current economic stresses, others feel that regional chains have failed to take advantage of their regional connection with customers.

Britt Beemer, chairman of America’s Research Group in Charleston, South Carolina believes that regional chains trimmed services over the years and “basically threw away their main customers.’

Discussion Questions: What do you think are the main causes behind Boscov’s troubles? What do you expect to see from the company coming out of Chapter 11? Do the recent problems of Mervyns and Boscov’s have anything to say about the regional department store business in the U.S.?

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11 Comments on "Boscov’s Files for Chapter 11"


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Jeff Hall
Guest
13 years 9 months ago

Closely held regional department stores are simply an endangered species. A lack of unique merchandise, compelling value proposition and undifferentiated customer experience drive consumers to the competition. Mervyns is a great example of this, on a national level.

Bob Houk
Guest
Bob Houk
13 years 9 months ago
When the economy is weak, companies that have managed to coast by are exposed–it’s no different this time. Mervyns has been weak for years, and the poor economy just finished them off. Steve & Barry’s was able to play their Ponzi scheme as long as the economy expanded, but it was bound to catch up with them–the economy sped up the day of judgment. Boscov’s, as already noted, spread themselves thin by over-expanding. I’m intrigued, though, by comments that this indicates a problem for “regional” department stores. How well is Macy’s doing? Until someone re-invents the department store (yeah, I know that Macy’s talked about it–but I mean DO it), the channel will continue to die off. Why should anyone shop at any department store? The selection is better (collectively) at the specialty stores in the mall, the prices are better in the discounters across the street at the strip mall, and the customer service…excuse me, I can’t type when I’m laughing so hard. It’s a channel that no longer has a reason for being.
John Crossman
Guest
John Crossman
13 years 9 months ago

I see this as a classic example of a retailer projecting their issues onto the economy. The reality is that they were headed in the wrong direction for years and the recent economic troubles forced them to finally deal with those issues. In comes back to knowing your customer and serving them. Britt Beemer is right.

Craig Sundstrom
Guest
13 years 9 months ago

Not mentioned in this story was the fact that Boscov’s had undertaken a major expansion 2 years ago, buying up a number of properties shuttered in the Federated/May merger (indeed, many of them are among the 10 that will close)…that the timing of this effort was unfortunate–at best–would seem a logical conclusion; also, that they are a closely held company, they may well have been undercapitalized.

But as to the bigger issue–a failure on (correctable) specifics vs. a general (and maybe final) failure of the regional full-line (“traditional”) deptartment store model–I don’t have enough information to tell.

Dick Seesel
Guest
13 years 9 months ago

Without judging Boscov’s merchandise content and store experience, its troubles are part of a long-term trend toward consolidation in the department store industry. The U.S. is left with one national “traditional department store” (Macy’s), some strong promotional stores (JCPenney and Kohl’s) and a handful of “super-regionals” (BonTon, Dillards, Belks) with issues of their own. Five years from now the competitive landscape will look different as some of these super-regionals are forced to merge.

Boscov’s is simply the latest in a long list of regional nameplates that have become less relevant to shoppers in a maturing industry with stronger competition. To blame its struggles on the housing market (which is a lot weaker in areas like California and Florida) sounds like excuse-making and doesn’t point to a convincing turnaround once its Chapter 11 financing is in place.

David Biernbaum
Guest
13 years 9 months ago

No doubt that the economy will be blamed, and of course it was the “straw,” however, reality is that this type of retail store has found it harder to be relevant for many years, even back when the economy was stronger.

Dan Soucy
Guest
Dan Soucy
13 years 9 months ago
When retail management has declining sales, he blames the economy. He blames the competition. He blames increased pressure from an event or series of events elsewhere. He blames the suppliers. He blames the staff. He blames the shipping industry. He blames the government. He blames everybody. But when retail management has increasing sales, he takes all the credit. As everybody knows, retail is highly competitive, and high stress in nature. The only retailers that continue to see success are those that are able to quickly adapt, and even foresee future sales trends and compensate for the whims of the market. When sales decline, there is never one single reason for that decline. All of these bankruptcies, or at east most of them, could be avoided had management been able to move in a different direction. Unfortunately, in many multiple store settings, the top management becomes burdened by two things. On the one hand is the need to satisfy the owner/stockholders need for stock value and dividends. On the other hand is an inability to be… Read more »
Paula Rosenblum
Guest
13 years 9 months ago

I talked to a reporter from a local paper in PA who wanted RSR’s take on the Boscov’s bankruptcy. I don’t live near many Boscov’s so I asked her the answer to the following question:

“In your opinion, what is it about Boscov’s that’s unique, and makes it ‘deserve to exist?'”

She really couldn’t think of anything besides “There’s one nearby my house.”

This is the core problem. A company has to have a clear and compelling value proposition. Otherwise, it will ALWAYS have trouble, and sooner or later, a Chapter 11 is in its future.

Mark Lilien
Guest
13 years 9 months ago

Local and regional department stores can do just fine, if they own their real estate and stay out of debt. Mediocre operations, mediocre strategies, mediocre managements, mediocre “customer service” are all OK if the locations will never face a rent increase and there aren’t any bank loan covenants. Look at your financial statement, then add back the rent expense and the debt payments. Pretax profits will be multiplied like magic!

Macy’s returns policy won’t allow Boscov’s to return the locations they bought, even if they still have the receipt.

William Passodelis
Guest
13 years 9 months ago
It is such a difficult business and I am rooting for Boscov’s if ONLY that it is NICE to go somewhere and see a DIFFERENT name on a building. That being said–there is no reason for Boscov’s to exist. They may not have been capitalized enough–they have the problems of their size and they do not seem to be taking advantage of the benefits of their size the way that they might be able to–their recent expansion may have caused them some added difficulty in the lead up to their Ch 11 filing–as noted, many of these added stores are now the ones to be shuttered. But it is just such a difficult business and in the middle there is no relief or reward. JCPenney and Macy’s have size advantage and Target and Walmart kill them in price. I agree that the regional department store has truly died and that there is no future. I agree that we will see further consolidation and flat out failure; perhaps Mervyns will not be acquired but simply close.… Read more »
Justin Time
Guest
13 years 9 months ago
When I first walked into the new prototype of Boscov’s department store twenty years ago, I was floored. Fancy light fixtures, silver and glass everywhere. This was to be the new Gimbels, the Bloomies for the masses. So what went wrong? I think the ten sites acquired from Federated/Macy’s may have been too much to swallow. I think 7 of the ten are slated to close in the weeks ahead. Also, Macy’s became the elephant in the china shop. 840 stores; it finally became the national department store. And it’s tough to get fashionable merchandise at good prices when Macy’s has all of that clout and buying power. Will Boscov’s fade away? I hope not. But it has retreated to its mid market roots, for the most part, and will probably never achieve more than regional status in the department store landscape for the near future. I hope it can survive. If not, it will join a long, long list of regional department stores that are just memories.
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