Retailer Boscov's goes bankrupt

Boscov's Inc. and seven businesses affiliated with the privately held department store chain filed for Chapter 11 bankruptcy protection Monday. The 227,000-square-foot store at Park City Center is not slated to close. (Suzette Wenger / Intelligencer Journal)

Boscov's Inc. and seven businesses affiliated with the privately held department store chain filed for Chapter 11 bankruptcy protection Monday.

Reading-based Boscov's, which last week said many vendors it owed money to were withholding their orders, said it plans to close 10 of its 49 stores and cut about 1,400 jobs.

Boscov's 227,000-square-foot store at Park City Center is not slated to close.

The company said it will close five stores in Pennsylvania - including one in Harrisburg - three in Maryland and one each in New Jersey and Virginia.

Boscov's describes itself as the largest family-owned, full-service department store chain in the country and says it employs about 9,500 workers.

Michael J. Hughes, Boscov's executive vice president of economic development, detailed why the company filed bankruptcy in a 14-page declaration to U.S. Bankruptcy Judge Kevin Gross in Wilmington, Del.

Hughes wrote that the Boscov's bankruptcy will allow it time to develop a rebound strategy "while weathering the economic storm currently buffeting domestic retailers."

Boscov's was founded by the Russian immigrant Solomon Boscov in 1919. His son, Albert, and his son-in-law, Edwin Lakin, joined the company in 1953.

Albert Boscov and Lakin retired in 2006 and named Lakin's son - Boscov's nephew, Kenneth Lakin - as chairman and chief executive of the department store chain.

Lakin guided an aggressive expansion campaign that included the purchase of 10 vacant Strawbridge & Clothier stores. But the expansion did not generate the anticipated boost in profit and cash flow.

The 10 stores that will close will shut down once inventory is sold in about a month or two, the company said.

Boscov's said it has a line of credit of $250 million from Bank of America and its stores will be well stocked for the back-to-school and holiday shopping seasons.

Operating in six states, the company said it has about 3,000 vendors. Boscov's owes about $90 million for merchandise and other goods and services.

According to a list it submitted to the court, Boscov's owes its top 40 unsecured creditors $32.6 million, led by Jones Apparel Group Inc., which is owed more than $3.1 million.

Boscov's had been a top newspaper advertiser in the mid-Atlantic region. It owes Philadelphia Newspapers Inc. more than $930,000.

The company listed assets of $538 million and liabilities of $479 million.

It had been generating annual sales of about $1.3 billion, and posted sales of $1.25 billion in its most recently completed fiscal year, which ended Feb. 2. Boscov's posted first-quarter sales of $263 million.

Cleveland, Ohio-based Jones Day law firm electronically filed Boscov's bankruptcy at 3:44 a.m. Monday.

The Chapter 11 bankruptcy filing automatically stays certain collection and other actions against the department store chain and its property.

On Monday Gross approved the company's request to consolidate the bankruptcy filings of its affiliates. They include:

Boscov's Finance Co. Inc., which holds receivables and loans funds to Boscov's affiliates.

Boscov's Investment Co., which holds the company's trademarks and trade names, collects royalties from Boscov's Department Stores, and pays interest on debt to Boscov's Finance Co. Inc.

SDS. Inc., which owns two store locations (Monmouth, N.J., and Toms River, N.J.) and collects rent from Boscov's Department Stores at those locations.

Boscov's Transportation Co. LLC, which transports merchandise to retail stores using equipment owned by the company.

Retail Construction and Development Inc., which originally was created to provide contracting activities for store development but is currently inactive.

Boscov's Travel Center and Boscov's Business Travel are separate entities and are not listed in the filing.

Hughes said Boscov's had tried diligently to avoid filing bankruptcy by attempting to refinance debt and by adding working capital.

But ultimately "internal and external" factors severely impacted Boscov's business, he said.

Hughes cited the collapse in the housing market, skyrocketing energy and gasoline prices and steadily increasing food costs that "have resulted in a decline in discretionary spending by consumers upon which (Boscov's) business depends."

Boscov's is the latest in a string of retailers, including Sharper Image, Linens 'N Things and Mervyn's, to have filed bankruptcy over the last year.

Hughes noted that by closing 10 unprofitable stores, the company's profitability will be "significantly facilitated" and that it could emerge from bankruptcy by the first quarter of 2009.

"Despite its current financial difficulties, Boscov's is well positioned to restructure its balance sheet and emerge from Chapter 11 as a profitable department store chain," Hughes wrote.