Regional retailer Boscov's Department Store LLC filed for Chapter 11 bankruptcy protection Monday, making it the latest casualty of the consumer spending slump.The filing, which came six days after Mervyn's LLC sought court protection from its creditors, highlights the challenges midtier regional department stores face as consumers cut back on discretionary spending amid rising fuel and food costs.
"We are middle America," said Maralyn Lakin, Boscov's senior vice president and a member of the family that controls the company. "I have never seen anything like this."
Regional department-store chains like the 97-year-old Boscov's were once the go-to destination for shoppers seeking everything from furniture to electronics, cookware and women's clothing.
But their local focus left the chains exposed to regional economic problems like the real-estate market collapse that hurt Mervyn's in California and Arizona, as well as fierce competition from national chains like J.C. Penney Co., Kohl's Corp. and Macy's Inc. At the same time, their small size -- once an advantage that allowed them to respond quickly to local tastes -- has prevented many regional chains from cutting deals with suppliers for exclusive lines they could use to differentiate themselves from competitors.
"You go into these chains and you find the same presentation and the same assortment," said John Champion, vice president at retail consultancy Kurt Salmon Associates. Other regional chains include Bon-Ton Stores Inc. of York, Pa., Gottschalks Inc. of Fresno, Calif., and Dillard's Inc. of Little Rock, Ark.
Boscov's, which had revenue of about $1.25 billion last year and has 49 stores in the mid-Atlantic U.S., said it will close 10 stores and liquidate inventory to repay creditors and reduce overhead. The remaining stores will continue to operate, with the help of $250 million in debtor-in-possession financing from Bank of America. The Reading, Pa.-based chain also said it is exploring a sale of substantially all of its assets to a third party.
The regional chains' woes can be traced to two things: the internet and department-store consolidation. Better deals on the in-store brands, less gas consumption, and simple convenience are often the reasons people turn to online shopping. Thus, online shopping, especially for women's clothing, has continually increased in recent years. The other obstacle, department-store consolidation, began three decades ago and culminated in 2006 with the merger of Federated Department Stores and May Department Stores into a national behemoth now called Macy's Inc.
Regional chains were "overzealous" in snapping up locations vacated by bigger chains, said Antony Karabus, chief executive of retail consultancy Karabus Management. Boscov's purchased 10 stores from the combined Federated-May company. Around the same time, Bon-Ton bought 142 stores from Saks Inc., including the Carson Pirie Scott and Bergner's chains.
Survivors like Macy's, which now operates nearly 850 stores, had the clout to develop and promote house brands and negotiate exclusive deals with hot brands. With Penney and Kohl's signing deals of their own with designers like Vera Wang and Nicole Miller, many struggling apparel makers began getting rid of low-margin moderate brands that had lost their cachet.
The result: Regional chains "can't get moderate product anywhere," said Wesley Card, chief executive of Jones Apparel Group Inc. Jones is reviving its moderately priced Evan Picone brand for the 280-store Bon-Ton chain. And this month, Bon-Ton is relaunching J.H. Collectibles, a label Liz Claiborne Inc. sold to Li & Fung. Bon-Ton hopes both labels will help attract shoppers when the economic climate improves.
By: Rachel Dodes
Wall Street Journal; August 5, 2008
