The bankrupt Boscov’s department store chain got some breathing room on Tuesday.
The retailer, which filed for Chapter 11 on Monday, received approval from a Delaware bankruptcy court for $250 million in debtor-in-possession financing from Bank of America and going-out-of-business sales at 10 units starting mid-August.
“We’ve got a little something off our chests today in court, but it’s been traumatic,” Ken Lakin, Boscov’s chief executive officer, told WWD.
Lakin also disclosed that, among about half a dozen bidders, Gordon Brothers had the lead bid in conducting the GOB sales at the 10 stores, which were purchased from Macy’s two years ago.
Asked if buying the 10 stores was a mistake, Lakin replied: “It’s a complex issue involving the cost of the purchasing and renovating the stores. You can look at any of the angles, whether we bought too many, paid too much or just didn’t cover the downside of the economic climate we find ourselves in. But I don’t think anyone was predicting this kind of volatility in consumer spending. We haven’t seen anything like this before, with companies from Nordstrom to Wal-Mart to Boscov’s all having difficulty to varying degrees.”
The Reading, Pa.-based chain is in middle-American markets hit hardest by rising gas and food prices and the housing slump.
Lakin said the situation was further complicated by declining newspaper readership. “We rely heavily on newspaper circulation,” he said.
Furthermore, the executive said the 10 stores didn’t have enough time to build sufficient pools of Boscov’s credit card holders. At best, some of the 10 stores achieved a 20 percent penetration among households within 5 to 10 miles of a Boscov’s. Older Boscov’s units have one-third to 60 percent penetrations.
“We were growing that charge base and telling people about all of the great products and great service and wonderful people at Boscov’s, but it was going to take longer than we thought to achieve our sales plan,” Lakin said.
While there’s been speculation that the 49-unit, $1.25 billion Boscov’s could be sold, Lakin said the intention is to continue as a stand-alone company. He did acknowledge that there has been interest shown by retail and private equity firms. Asked if Belk Inc. is among the interested parties, Lakin declined to confirm it, though he did say: “There is always interest, but nobody puts much stock in interest.”
Lakin also stressed that no more than the 10 stores will close. About 1,400 associates will be affected by the store closings. Most will be out of work, though Lakin added that some could be reassigned to other stores.
“Our top 300 vendors are really looking for ways to ship with terms,” Lakin said. “Right now they want to see the plan of reorganization, and that’s been made public today.” In the days and weeks ahead, a creditors’ committee needs to be formed and approved by the court, and then Boscov’s will work with the creditors to develop a final plan of reorganization that entails sales, profit, inventory and expense plans.
Monday’s filing wasn’t really a shocker to vendors, Lakin said. “We did everything possible to pay them off. We spent the last nine months trying to do that and get current, but the economy just held us back. We really tried to get people caught up all year long, and we did things we thought would pull us through. We reduced expenses by $20 million. We reduced debt by $58 million. We eliminated capital expenditure of $15 million this past year. We struggled to get current with our vendors by doing these things up until the point where they said it was not enough. In order to get shipping for the critical back-to-school and holiday periods, we took this rather drastic step to rid ourselves of stores that were not too positive with cash.” Bankruptcy law enables retailers to get out of lease obligations.
The DIP financing will help replenish inventories, which Lakin said are lowest in men’s and women’s sportswear and shoes, as well as some cosmetics lines. Year to date, young men’s surf and skate, men’s suits, ties, shirts, skin care and cosmetics were among the better selling categories.
His message to vendors: “You should ship us as quickly as possible because we are going to survive.”