A 3-store offensive


READING, Pa. -- Down the steps of the Boscov's Department Store here, past the display of patio furniture, near the ladies in gift-wrap and squeezed into the basement, you'll find the chain's corporate headquarters.

The modest, quaint central suite seems to befit the 40-store company begun 85 years ago by a Russian immigrant in this blue-collar city folded in the Lebanon Valley of eastern Pennsylvania.

The halls are a little dark, a little dank. The furniture's a bit dated. The buyers who choose the merchandise to be sold in stores sit crammed behind tall cubicles plastered with family photos and photocopied cartoons.

Clothing samples hang on rolling racks in the aisles. The president's office is about the size of a high school principal's, no glammed-up corporate executive's digs.

But Boscov's, which about to move into the Baltimore market, is taking a step beyond its traditional roots. It's a bold leap at an uncertain time for department stores, squeezed by the proliferation of discounters and specialty stores. The family felt the enterprise had reached a critical juncture: grow or wither.

"Everything has its risks and we're working to mitigate those risks as much as possible without straying from the formula that has gotten us to where we are," said Kenneth S. Lakin, the company's chairman and chief executive officer. "We're not reinventing the wheel. We're just tweaking it a little bit."

By the end of June, Boscov's expects to close on a deal to buy 10 stores from Federated Department Stores Inc., the Cincinnati retail giant that is unloading excess property as a result of its recent merger with May Department Stores. As it combines its various regional department stores - including Hecht's in the Mid-Atlantic - into a national Macy's brand, Federated is sell- ing off excess stores to other retailers.

In the Baltimore area, Boscov's will take over Macy's stores at White Marsh and Owings Mills malls in Baltimore County and at Marley Station in Anne Arundel County. The stores are to be open by the November-December holidays.

With its purchase of 10 stores, Boscov's will expand by 25 percent at once, the biggest growth spurt in its history.

Many of the chain's new markets, such as Pittsburgh and Baltimore, are larger than where the retailer has typically prospered. Its stores stretch from upstate New York to southern Virginia.

Its Maryland stores can be found in Westminster, Frederick and Salisbury.

But Boscov's is concentrated in eastern Pennsylvania and almost exclusively in small and mid-size cities that offer fewer shopping choices and competition.

The retail chain dates back nearly a century to Solomon Boscov, a Russian immigrant who arrived in Reading in 1911. He bought $8 in goods and walked the countryside selling them or exchanging them for meals and lodging.

In 1921, he had saved enough money to open his first store at Ninth and Pike streets in Reading's downtown. He would operate that one store for nearly 40 years.

His son, Albert Boscov, and his son-in-law, Edwin Lakin, joined the company in 1954. They persuaded the elder Boscov to enlarge and renovate the original store. In 1962, they built a second store in West Reading. In 1972, three years after Solomon Boscov died, the company opened its first store outside the Reading area, in Lebanon, Pa.

Reading natives have fond memories of visiting the stores as children and gazing up at the chandeliers, a trademark of many of the older locations. Boscov's anchors every major mall in the area. When others closed, Boscov's always remained.

"Boscov's is a big name here," said Nathaniel Thomas, 31, who is in charge of government documents at the Reading Public Library and recalls as a kid shopping for school clothes at Boscov's. "That was where you shopped. There wasn't much else except Boscov's. It was always there."

At the City Espresso, a trendy coffeehouse that symbolizes the revival of the sleepy downtown, artist and customer Tina Marie recalled a popular company marketing campaign that asked, "Did You Boscov Today?" Bumper stickers with the popular mantra still are seen around town.

"Everybody knows Boscov's," said Marie, sipping coffee.

In the city known by busloads of visiting shoppers as the "outlet capital," Boscov's remains a favorite among longtime residents.

"Even in spite of the fact that we have lots of outlets, the Boscov's store still does very good business," Reading Mayor Tom McMahon said. "The community really gives back because they know the Boscov family."

The Boscov's touch goes beyond the shopping malls in and around Reading, a former railroad hub that has been struggling since heavy industry dried up in the 1970s.

Albert Boscov has been a significant player in economic development, leading the charge to develop a major arts center. He shepherded a program that refurbishes homes to be bought by lower-income families. Even a section of Pennsylvania Route 422 is named the "Albert Boscov Commemorative Highway."

Last year, Boscov's had reached its own crossroads. Its patriarchs, Albert Boscov and Edwin Lakin, were looking to retire. Sales hadn't budged much in years, hovering at about $1 billion a year.

The cost of utilities, salaries, health care and other operating expenses were rising, while deflationary pressures were holding down prices on big-screen televisions, digital cameras, apparel and other goods. Known for being affordable, Boscov's couldn't raise prices without hurting itself.

The family-owned company had several options, including bringing in outside investors or, perhaps the most wrenching, selling the company. They ultimately decided to use the assets they had to borrow money for additional stores and keep the business in the family.

In January, Kenneth Lakin, Edwin Lakin's son, became chairman and chief executive officer of the company when his father and uncle decided to retire. Burton Krieger, a longtime Boscov's executive, became the retailer's new president and chief merchandising officer.

The Federated merger with May Department Stores was fortuitous because it opened markets that Boscov's had looked at for years. Malls that once rebuffed Boscov's were now desperate to fill anchor spots.

Lakin said Boscov's once was on the verge of signing a deal to enter Owings Mills Mall, but the Rouse Co., which then owned the property, backed out at the last minute in favor of Lord & Taylor. Lord & Taylor later closed its store there.

Still, the retailer's name is unfamiliar to many shoppers outside Boscov's original territory in Pennsylvania Dutch country. Analysts who cover the retail industry are hard-pressed to give much detail about it.

"They're in a very tough part of the market because they're in between the low end which the Wal-Mart and Targets dominate and the high-end stores like Nordstrom," said Scott Rothbort, a professor of finance at Seton Hall University and president of Lakeview Asset Management, a private investment management company.

"Right now, the middle isn't working too well. I can't quite see where their business model is going to take them."

Russell Jones, director of Alix Partners, a retail management consulting firm, shares those concerns, although he speculates that Boscov's may initially attract customers who are curious about what it has to offer as well as Hecht's shoppers disgruntled by the Macy's takeover, which will result in the disappearance of the Hecht's brand.

There are still successful department stores, retail experts point out. The century-old J.C. Penney recently reinvented itself as a fashion-conscious, yet affordable store, and saw some of its best holiday sales in years in November and December. Nordstrom Inc. also still continues to perform well by catering to a high-end consumer.

To get a glimpse of what to expect of Boscov's around Baltimore, one just has to take a peek at its store at Berkshire Mall outside Reading.

The 225,000-square-foot store there looks like a typical mid-tier department store - a cross between J.C. Penney's and Hecht's.

Although Boscov's doesn't have much reputation for fashion, it has stepped up its apparel choices in recent years. A stack of Calvin Klein jeans lay on a round table not far from bright spring apparel from Bandolino, Liz Claiborne and Tommy Hilfiger. The men's department featured a Ralph Lauren Polo shop.

Boscov's does carry a much larger variety of products than most department stores, something that Kenneth Lakin said distinguishes it from competitors. It has 35 departments, while most department stores have 25, Lakin said.

Boscov's trademark homemade fudge is sold from an old-fashioned candy counter. It still sells major appliances, such as washers, dryers and televisions, goods that some department stores decided to abandon because they weren't profitable enough or they couldn't compete with the "category killer" big-boxes.

Boscov's also offers its own travel agency, television repair shop and hearing aid centers - services that also evoke a long-gone era of retail service.

Some analysts said the one-stop shopping strategy might work in smaller markets with fewer places to shop. But Boscov's may have a harder time convincing people in markets such as Baltimore to buy a television from them when many electronics specialty stores abound.

But Boscov's believes its more homey quality may attract consumers who miss the more personal touch they once enjoyed at Hecht's or its long-ago predecessors in the market such as Hutzler's or Woodward & Lothrop.

One of Boscov's more popular programs is "register roulette," where shoppers determine their discount from a scratch card when they get to the register. On "Cracker Jack" days, customers get a box of Cracker Jacks that determines their discount.

Lakin has spent recent weeks visiting his prospective stores in Maryland. As he sat in the food court at White Marsh Mall recently, looking over blueprints, he said the Pittsburgh stores were in good shape but the Baltimore stores, which he expects to open by the November-December holidays, would need a little more work. The spaces are well-worn, in need of better lighting and more inviting displays.

He knows the Boscov name has no following in Baltimore and plans an extensive marketing campaign to get the word out.

"This market is very important to us," he said. "Hecht's didn't work out here. We don't want that to happen to us."


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