WYOMISSING, Pa. — For Boscov’s, thinking out of the box means putting more into it.

Like homemade fudge at $4 a pound, $14 neck massagers, $20 insulated Thermos pump pots, or $7,000 Hitachi plasma TVs — indulgences that shoppers in the blue-collar Rust Belt don’t necessarily require, and in some cases yield low margins. They’re more apt to go for the H.I. Hummel figurines, or Hawaiian shirts.

This story first appeared in the March 17, 2003 issue of WWD. Subscribe Today.

“What’s more fun than looking at all this stuff you don’t need?” exclaimed Albert Boscov, the 73-year-old co-owner, chairman and chief executive of Boscov’s Inc., parent of the privately held Boscov’s chain.

He’s the son of Solomon Boscov, who founded the company in 1911 by selling goods off a horse-drawn wagon. Like his father, Albert has a passionate selling style. “We still have garden supplies, sporting goods, luggage, furniture and we make our own fudge,” he said. “But we still sell these chocolate kisses, the same as Wal-Mart. Do we make money on it? Absolutely not, but we have it so the customer doesn’t have to go there.

“We’ve stayed a department store. Other department stores got out of anything that was difficult to make money.”

Boscov’s is an anomaly — a family-owned, regional department store chain that is thriving at a time when only a few of its ilk are still standing. Moreover, with the exception of Sears, it is one of the few old-fashioned, full-line department stores, selling everything from apparel to white goods, CDs to sporting goods. Boscov’s has sales of $1.1 billion from 38 stores in Pennsylvania, Delaware, New Jersey, New York and Maryland, stretching from Atlantic City, N.J., west to Pittsburgh and Albany, N.Y., and south to Salisbury, Md. It also has a few other holdings in real estate, restaurants and catering.

Like other regional chains, Boscov’s, based in Reading, Pa., is under assault from the mass merchants Wal-Mart and Target to rival department stores Kohl’s, J.C. Penney Co., Sears, Roebuck & Co. and Macy’s. Pennsylvania is also the kingdom of outlets. The fierce competition makes it imperative to differentiate, although regionals such as Belk’s, Dillard’s, Elder-Beerman and Gottschalks, are just hanging on.

“We’re the biggest thing going in town, and we have the biggest selection of merchandise, other than food,” said Kenneth S. Lakin, Boscov’s chairman and chief executive, as well as being Albert’s nephew and the son of Edwin Lakin, Boscov’s other co-owner. “You have to have personality and a selection that’s special to the market”

The competition from Kohl’s, Macy’s and other retailers will only intensify, threatening Boscov’s. Regional chains have been gobbled up by bigger chains or disappeared on their own, and some national chains such as Federated Department Stores, the parent of Macy’s, have been testing smaller stores in smaller markets, which is Boscov’s country.

“There isn’t a fit there,” Lakin contended of major department store chains going into smaller markets. “They don’t do well in populations under one million. We do very well in populations of 250,000 to half a million,” typically selling to households with an average income of $70,000, where both the husband and wife work, and there are one or two children. It also has a slightly older average customer profile, around 37, a year or two higher than other department stores.

Boscov’s all-out approach seems to be working. Being privately held, it does not disclose profits, but it’s said to have an operating profit rate of around 6 to 7 percent of sales. That’s about twice that of a prime competitor, the York, Pa.-based Bon Ton, which has hovered around 3 percent.

Lakin did say that last year, Boscov’s earnings before interest and taxes rose 25 percent, although comparisons would be easy considering how difficult 2001 was for all retailers. The company also had a 2 percent comparable-store gain last year, whereas department stores were generally flat or down.

A better comparison is 2000. “It was the best year we’ve ever had,” highlighted by a 4 percent comp-store gain, Lakin said. Anything over 3 percent “really helps cover the overhead,” he added.

While Bon Ton units average 60,000 square feet and sell primarily apparel, Boscov’s units average 185,000 square feet, with apparel, accessories and shoes representing 55 percent of the volume. Hard lines represent 45 percent of the volume. Private label represents 18 percent of the business, with the key in-house brands, being Hastings & Smith for knits, Preswick & Moore for related separates and updated separates, and Architect for opening price points, according to Thomas S. Crystal, senior vice president and general merchandise manager of ready-to-wear at Boscov’s. The private-label goods are supplied by Associated Merchandising Corp., a unit of Target Corp.

Key apparel brands include Liz Claiborne, Emma James, Caribbean Joe, Norton McNaughton, Tommy Hilfiger, Rafaella, Nautica and Polo. Casual is the most developed women’s category, though the biggest growth has been in updated moderate, while Boscov’s “has opportunities in career,” Crystal said. The average sales slip is typically $50 for two items, with the merchandise presentations primarily moderate to upper moderate. About 80 percent of the merchandise selection is the same from door to door; with the remaining 20 percent tailored to individual markets.

In the home category, particularly soft goods, cookware, small appliances and domestics, Boscov’s really tries to out-merchandise competitors with deeper inventories. For example, many department stores go deep in towels and bedding, but Boscov’s goes deeper by presenting vignettes, with four-way towel fixtures displaying matching shower curtains and bath accessories. “Our customers pay extra money for this, but it’s extra business for us, regular priced and very profitable,” said John Young, vice president and divisional merchandise manager for domestics.

He also said that Boscov’s considers itself a destination for curtains and drapes, selling about $25 million in the category. Penney’s sells more curtains and drapes than any other department store but, according to Young, “We do more volume per store than Penney’s.”

Two to three days a week, buying teams are in the markets, where Boscov’s has generally sustained good relations with suppliers, not the least of which stems from a chargeback policy that’s less rigid than national department store operations. “Boscov’s is a different animal,” said David N. Kaliski, president of Royale Linens Inc. “It’s a regional that appears to be doing well. Over the years, they were unique in the way they handled vendor resources. They used to give prizes to vendors, trips to Antigua. They don’t do it as much anymore, but they are relatively easy to deal with. They’ve made us feel like family.”

“There’s a sense of originality in the merchandise, like the original R.H. Macy & Co.,” observed Frank Guzzo, a sales rep from Thermos.

On the markdown front, Boscov’s can be aggressive, but not like Macy’s. When Kohl’s entered Boscov’s trading area five years ago, Boscov’s took two busloads of staff to a Kohl’s in Erie, Pa., and spent hours in the store. “We were very impressed by their domestics,” Lakin said. “So we repriced our home store to a promotional stance,” as opposed to the usual “best value” everyday low price stance. “As a regional, we were able to react.”

Still, as Boscov explained, it’s not as markdown manic as other stores.”We are aggressive, but we try to give value every day. But if something comes in overpriced, we will put it on sale.”

Burton C. Krieger, Boscov’s president and chief merchandising officer, said that at the Wyomissing store, a former Strawbridge unit that did $12 million in annual sales, “we’ll do $30 million in this building,” which was converted to Boscov’s last fall. “We think we have an alternative. We are the branded value alternative and we get closer to the customer. Fifty percent of the store manager’s job is to be involved in the community, and our secret weapon is our relationships with the market.”

For the future, Boscov’s plans steady, realistic growth consistent with its past gradual expansion, which has involved cherry-picking other regionals, including the defunct Stern’s and Hess’ and some former Strawbridge units. “We haven’t added tremendous debt, so when the economy slows down we can still manage the debt load,.” Lakin said. He declined to specify the debt.

With two store openings set for this year, in the fast-growing northern Maryland towns of Westminster, on April 6, and Frederick, in late October, Boscov’s is shooting for $1.3 billion in 2003 sales. In five years, the company envisions 50 stores situated in 10 states. “We are looking at Virginia, Ohio, and southern New England,” Lakin said. “We haven’t gobbled up more than we can chew. We average two store openings a year, although sometimes we’ve opened three or four. Our distribution center in Reading can handle another 35 stores.”

As a private company, “you don’t have to look at every quarter. Being private allows us to look at the longer term,” Lakin explained, although he acknowledged that lenders still want to see progress each season.

And while regional retailers and independently owned stores have been disappearing, Lakin says there’s a clear case for Boscov’s staying independent. “Everybody has their price, but we are not actively soliciting. It wouldn’t help the stock price of any big department store to add a small regional. The rate of return might not be what shareholders are used to, so it may bring down the stock price. All independent operators are somewhat under the radar screen. We are looking to grow [our] formula, which has been successful as a private company.

“We do operate in a lot of depressed towns, like Johnstown, and Pottsville, Pa., but we’ve kept all these departments — major appliances, sporting goods, toys — and that creates traffic. We have 100 people on the floor at any one time. Penney’s, Sears, probably have half as many people,” he said. “The name of the game is how to differentiate.”

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