Regional department store chain Boscov's Inc. filed yesterday for Chapter 11 bankruptcy protection and said it would close 10 stores, including anchors in three of the Baltimore area's largest malls, as the company suffers from slumping sales amid the housing and credit crunch.
Boscov's, based in Reading, Pa., will begin liquidation sales immediately and will close those "underperforming stores" when the entire inventory is sold, which officials estimate will take one to two months. About 1,400 employees, including about 400 in the Baltimore area, will lose their jobs.
Officials from the 49-store chain said in court filings and interviews that the collapse in the housing market, skyrocketing energy prices and higher food costs cut the discretionary spending of its shoppers and in turn put pressure on the company's finances. The decline also emerged after the 87-year-old privately held company began an aggressive expansion strategy into new markets two years ago.
"There was no way that we could have ever anticipated these tough economic times," said Maralyn Lakin, Boscov's senior vice president of marketing and public relations. "So many people were affected with their mortgages and high gas and food prices. This is beyond what anybody expected."
The bankruptcy comes after Federated Department Stores bought May Co. for $12 billion in 2005, freeing up valuable mall space that made way for the biggest expansion in Boscov's history. The Federated transaction resulted in the closing of several Hecht's stores in the Baltimore market. That opened the door for new Boscov's at White Marsh, Owings Mills and Marley Station malls in 2006. Each of those stores, which Lakin said were not making money, will close under this reorganization.
"It takes time to develop a customer base in new markets as customers come to understand who and what we are," Lakin said. "The stores had not turned a profit. Given the economic situation, we don't have the cash flow to keep supporting markets that aren't profitable."
Boscov's joins a list of retailers that have declared bankruptcy in recent months as consumers spend less, including Bombay Co., The Sharper Image, Linens & Things and Lillian Vernon. The California-based department store chain Mervyns LLC filed for bankruptcy protection last week as sales dropped because of the weak real estate market.
"The situation is totally unstable," said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail and investment banking firm in New York. "We're going to see 7,500 to 8,000 stores close this year."
Boscov's said it has obtained $250 million in financing from a group of lenders led by Bank of America Corp., which will allow it to keep the rest of its stores open during the reorganization. It stressed that its remaining stores were well-stocked and that all warranties, gift cards and bridal registries would be honored. The company's other Maryland stores - in Westminster, Frederick and Salisbury - will remain open. Boscov's also has stores in Pennsylvania, Delaware, Virginia, New York and New Jersey.
Boscov's said in court documents that it generated about $1.25 billion in sales for the fiscal year ended Feb. 2. It brought in $263 million in the first three months of the current fiscal year. As of May 3, it had $538 million in assets and $479 million in debts, the documents say.
Its 40 biggest creditors are a Who's Who of fashion and home wares. It owes its biggest debt - $3.1 million - to Jones Apparel Group of Bristol, Pa., court filings show. Others on the list range from shoe seller Adidas to clothing brand Polo-Ralph Lauren.
The retailer's troubles also are bound to stress already troubled newspapers and other media, which depend on the company for big advertising spending. Philadelphia Newspapers LLC, publisher of the Philadelphia Inquirer and Daily News, is owed $930,047, according to the bankruptcy filing.
Both The Sun and the Baltimore Examiner are among Boscov's thousands of creditors. Sun management declined to disclose how much the paper is owed, and neither The Sun nor the Examiner made the list of 40 largest creditors.
Boscov's said in court filings that it expects to have a reorganization plan by the first quarter of next year. One option it will explore is whether to sell the company.
Boscov's, started by Russian immigrants, faced many naysayers when it announced in 2006 that it was moving beyond its original territory in Pennsylvania's Dutch country and expanding the company by 25 percent.
The department store chain had been concentrated almost exclusively in small and mid-size cities with fewer shopping choices and competition. Expanding in markets like Baltimore was much more competitive because of their many shopping choices. Boscov's entered the market with little or no name recognition.
The retailer employs what many call a throwback strategy of selling everything from appliances to apparel under one roof - an effort some retail analysts weren't sure new shoppers in larger markets would embrace.
Department stores already were facing challenging times, hurt by a proliferation of discounters and specialty stores. Consumers had begun to shop less in the enclosed malls that department stores anchored.
But Lakin said Boscov's expansion strategy would have worked in better times. The company never expected new stores to be profitable immediately, she said.
"In any other economic time, we would have been able to cover it," Lakin said.
Boscov's took over 10 stores from Federated, which owns Macy's department stores among other chains. Seven of the stores Boscov's is closing were locations previously held by Federated. Besides the three Maryland locations, Boscov's is closing stores at five malls in Pennsylvania and one each in New Jersey and Virginia.
Michael J. Hughes, Boscov's executive vice president, said in a court filing that the locations acquired by Federated "have not generated the increases in profit and cash flow anticipated."
Some analysts said that Boscov's might have done better in a more stable economy.
"I felt like it was a robust business model for a decent economy," said David Fick, an analyst with Stifel Nicolaus & Co. "But they served the average household. That is who is feeling the stress from the economy.
"I think they expanded too fast and the economy caught up with them - and that combination was toxic," Fick added.
Shoppers at Marley Station mall yesterday said that they had developed a loyalty to the chain.
"This is my store," said Ann Price, 67, as she walked into Boscov's at Marley Station. "I used to be a Hecht Co. person and now I'm definitely a Boscov's person."
Price, a school secretary who made the trip from her Dundalk home to visit the store, said that Boscov's offered quality merchandise, good customer service and prices "better than the outlets."
Linda Dinar, 68, a retired technical writer from Arnold, hurried to Boscov's yesterday after a friend told her about a deal on bedding sets.
As she lugged a cream-colored embroidered comforter set to her car, she said that she would miss the store.
"They have things in there you don't find anywhere else," she said. "I like their merchandise and their prices have always been outstanding. It's a shame that the economy is not supporting it."
Customers said that they were disappointed to see another department store chain close.
"My grandmother worked at Hutzler's for years and years. I used to work at Stewart's downtown in the beauty section," said Michelle Shek, 57, a hairdresser from Catonsville. "It seems all the department stores are closing."
* Monroeville Mall, Monroeville, Pa.
* South Hills Village Mall, Pittsburgh, Pa.
* Oxford Valley Mall, Langhorne, Pa.
* Montgomery Mall, North Wales, Pa.
* Harrisburg East Mall, Harrisburg, Pa.
* Monmouth Mall, Eatontown, N.J.
* Piedmont Mall, Danville, Va.