While Filene's Basement filed for bankruptcy last week, the bigger surprise to many was that the legendary Boston upscale off-pricer appears to have avoided liquidation. Two real estate firms made a bid to buy 17 of its 25 stores - including the Boston flagship and Union Square, NY locations - with plans to operate them under the same upscale off-price model.
The bankruptcy was blamed on the economic downturn, poorly performing suburban stores, liquidity issues that impaired buying, and increased competition. Particularly harmful has been the temporary closing since 2007 of its flagship store in Downtown Crossing in Boston as a result of a stalled construction project. The longtime tourist attraction, famous for its 'Running of the Brides' wedding gown sales, accounted for one-fifth of sales. Steep discounts at upscale retailers such as Saks during the downturn also impacted Filene's Basement's rock-bottom prices on luxury goods formula.
But some believe the same problems that led to its first bankruptcy in 1999 never left. These include greater competition from bigger rivals such as TJX, as well as over-expansion in the nineties. While facing strong competitors such as Century 21 in New York City, opening branches outside its core market diluted its overall appeal.
"The branch stores didn't have the automatic markdowns [of unsold merchandise], the lunchtime traffic, the running of the brides," Michael Tesler, a partner at Retail Concepts, told The Boston Globe. "Instead of seeing Filene's Basement as something special, people saw it as a store like any other."
Bob Gottlieb, president of Sceptre Marketing Group, agreed. "The intrigue of shopping at Filene's Basement was mostly a Boston thing, a New England thing," he said.
But Stanley Chera, the founder of Crown Acquisitions, one of the bidders, said credit issues at luxury retailers is opening up rare access to quality designer goods for upscale off-pricers like Filene's.
"People would come to us if we had the right merchandise. The magic of Filene's Basement is well-known," Mr. Chera told The Boston Herald.
Crown, along with the Chetrit Group, said the chain was making money at the store level, but overhead was too high.
"It's a wonderful brand, and we have the expertise and the credit and cash to do what the company really needs: good buying, paying the bills, lots of money behind it and quality merchandise at good prices like the Century 21 operation," Stanley Chera, the founder of Crown Acquisitions. "It's all current goods. It's not stale merchandise."
The group's $22 million bid requires bankruptcy approval and faces an auction at which competing offers may be offered.
Discussion Questions: How should Filene's Basement be reorganized? Is it still a viable brand and concept? How would you rate the market opportunity for upscale off-pricers such as Filene's and Century 21?