Boscov's files for bankruptcy protection

For months, family members scraped and scrounged to save their beloved Boscov's. The pressure was intense. An "emotional roller coaster," according to chief executive officer Ken Lakin.

They cut costs. Dumped millions of their own money into the nation's largest family-owned department store chain. Refinanced debt and promised vendors they'd make good on late payments. They even courted private-equity investors.

"Will it be enough?" they asked themselves time and again.

By Friday night, it had become clear: Bankruptcy was inevitable. "There was no going back," Lakin said.

The Reading company, whose stubbornly old-style stores anchor many of the region's malls and which proudly flaunts customer service with a smile (homemade fudge, too), filed yesterday for Chapter 11 bankruptcy protection.

The filing of the voluntary petition in U.S. Bankruptcy Court in Delaware gives Boscov's Department Store L.L.C., the last of a dying breed, breathing room to keep operating despite owing restless creditors $90 million.

The bankruptcy filing made possible a $250 million emergency loan that will enable Boscov's to pay employee wages, buy merchandise, and live to see another day.

Vendors had stopped shipments a few weeks ago because of unpaid bills. This provoked a furious search by company officials for emergency cash - an effort made all the more difficult by the credit crisis that has tightened lending.

As part of its planned reorganization, the 97-year-old company said it would close 10 of 49 stores (in Montgomeryville Mall and Oxford Valley Mall in this region).

Seven of the stores on the chopping block were snapped up by Boscov's in early 2006, after Strawbridge's and other chains vanished, leaving behind vacant mall anchors.

Boscov's said its acquisition of those 10 stores did not meet expectations in that they "have not generated the increases in profit and cash flow anticipated."

Despite its fragile financial state, brought about in part by declining sales and consumer hardship, Boscov's will continue sponsoring Philadelphia's Thanksgiving Parade, Lakin said.

The company also hopes to stick to its plan to open a new store at Willow Grove Park mall, though that decision and others will have to be put to creditors. No date has been set.

The company will spend the next three months drafting a reorganization plan that could potentially include putting itself up for sale to generate cash to pay off the debts that triggered the crisis.

While Lakin and other family members have abdicated some control in return for bankruptcy protection, the third-generation Boscov's offspring hope to keep the company intact.

"We do expect to succeed with the 39 stores and be a dominant player in the market that we're known in - in the years to come," said Lakin, 54, who took control of Boscov's in February 2006 after his father, Ed Lakin, and uncle, Albert R. Boscov, retired after decades at the helm.

Some retail experts have compared the litany of recent bankruptcies to a retail "graveyard."

Just last week, the California-based Mervyn's L.L.C. department store chain declared bankruptcy. Others before that included the Bombay Co. Inc., Sharper Image Corp., and Linens 'n Things Inc.

Boscov's desire to remain intact may clash with creditors' desire to get paid. For example, the company said it owed one clothing vendor, Bristol-based Jones Apparel Group Inc., about $3 million.

For some creditors, liquidating assets may be paramount.

"It's a question of getting the creditors to believe it's better for them to hang in there and allow the workout to happen," said Stephen J. Hoch, director of the Jay H. Baker Retailing Initiative at the Wharton School.

Boscov's, which generated $1.25 billion in sales last year, reported yesterday that it had $538 million in assets and $479 million in liabilities.

Hoch said those figures were daunting - especially if most of the asset value were tied up in store merchandise, which loses its value "like fruit" the longer it goes unsold.

Boscov's said it would immediately liquidate the 10 stores it was closing. Hoch said creditors could press for more.

"You do not see a whole lot of examples of retailers shrinking attractively," Hoch said. "It just doesn't happen that often. Doesn't mean it can't happen."

The family scramble to save the company founded in 1911 was laid out to some degree in yesterday's filing.

In March, as vendors were learning that bills were going unpaid, Boscov's got a $60 million loan from Bear Stearns Corporate Lending Inc. days before JPMorgan Chase & Co. took over Bear Stearns in a subprime-bailout deal.

The Boscov and Lakin families produced $21.9 million of their own money to reduce the principal to $38 million. Along the way, the family consulted with Lakin's father and uncle, who both still have offices at headquarters.

"It's been an emotional roller coaster for each one of us in our own way," Lakin said. "I've got to say that the family's been extremely supportive - every one of them.

"I think it's important to all of us that we recognize that we are family," Lakin said, "and at the end of the day, maybe that's the most important thing."

Headquarters: Reading.

Founded: 1911 by Solomon Boscov.

Business: Operates department stores.

Stores: 49 in Pennsylvania, New Jersey, New York, Maryland, Delaware and Virginia

Employees: 9,500.

2008 revenue*: $1.25 billion.

*Fiscal year ended in February.      SOURCES: Boscov's, Bloomberg News

EndText

To read some of the court documents filed in the bankruptcy case, plus recent coverage of Boscov's financial problems, go to http://go.philly.

com/boscov

EndText