Friday, February 10, 2006

Boscov's department stores aim for the masses

By Teresa F. Lindeman, Pittsburgh Post-Gazette

PITTSBURGH - The Boscov's department store chain wants to serve middle America, plain and simple. Forget trying to go more upscale or introducing edgier fashions, this Reading-based, family-owned retailer wants to be the store for those who don't much go for either of those things.

Boscov's will be moving into Allegheny County later this year after it closes on purchases of two Kaufmann's stores at Monroeville Mall and South Hills Village. Among other things, the retailer is hoping to pick up those Kaufmann's shoppers who do not want to be converted to Macy's customers.

The company successfully bid on a total of 10 sites owned by department store operator Federated Department Stores, which is in the process of shedding excess locations picked up in its acquisition of rival May Department Stores. Federated has Macy's stores and May had Kaufmann's, often in the same malls.

The $17 billion merger of the two industry giants reflects the struggles that department stores are having in competing with big-box stores and specialty retailers. Nevertheless, it came at an opportune time for the family-owned department store operator with just $1.1 billion in total sales.

In addition to opening up prime real estate, the deal should allow the smaller Boscov's chain to more clearly carve out its niche among middle market customers.

The opening appears to be there. In discussing their strategy to generate strong sales growth, Federated officials have said they thought May officials underestimated the willingness of consumers in some markets to pay more for the right merchandise.

Going more upscale may work well for the Cincinnati-based Federated, but it may leave business on the table, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment firm headquartered in New York. "I think a lot of those customers are going to be turned off by what Federated is doing."

If so, maybe they'll be willing to give retailers such as Boscov's a look-see.

Over the years, the company has charted its own route, keeping toy departments, selling televisions and offering repair services for the appliances it continues to carry despite the fact that most of its department store competitors have decided it's not worth the trouble.

Even if Wal-Mart has more toys or Dick's Sporting Goods has more golf balls, offering such merchandise at Boscov's means convenience for consumers. Repair services help build loyalty, said Kenneth S. Lakin, Boscov's chairman and chief executive officer and the grandson of founder Solomon Boscov.

If profit margins in one department dip, they often rise in another, he said.

Brand names that range from Sony to Waterford to Liz Claiborne, Clinique and Nike account for about 90 percent of the merchandise at Boscov's, with private labels filling out the remaining 10 percent.

Being family owned has made it possible to be different, but it also has meant slow growth. Boscov's initially identified more than 20 of the 70-plus Federated stores for sale that it was interested in. That would have been too much to swallow all in one gulp.

Even the 10 sites that Boscov's has agreed to buy would have been out of the question in the company's early years. During the Depression, the founder bought row houses next to his Reading store and stealthily tore down the interior walls so his worried wife wouldn't realize that he was expanding until it was completed.

The family had only the one store until the 1950s when the founder's son, Albert Boscov, and son-in-law, Edwin Lakin, joined the business and began to add suburban locations.

Boscov's now is in the midst of another turning point and not just because of the new stores. A couple of years ago, the company began reviewing its options as the two top executives prepared to retire.

A few weeks ago, the retailer announced it had decided not to sell but had worked out a recapitalization and restructuring to allow Mr. Boscov, 76, and the elder Mr. Lakin, 82, to retire and to keep the company in the family. Kenneth Lakin took over the top job along with the knowledge that he would have to step up the pace of new store development to make the numbers work.

Instead of adding one or two stores a year, Boscov's now plans to open about five annually. This year's 10-store jump will mean the company will take a breather next year and then move into the new expansion mode.

Mr. Lakin expects the sale of the mall sites to close by spring and the stores to reopen under the new name by fall with about 400 employees each. Eventually, he'd like to put two more Boscov's in the county, which would spread marketing costs across a larger sales base. The retailer already has stores in nearby markets such as Beaver and Butler counties.

He declined to say whether Boscov's had put a bid in on the Macy's store at Ross Park Mall that also is up for sale, although there has been speculation the company would have liked that location, too. Federated has not yet announced who made the successful bid for the North Hills mall site.

The Boscov's department store team flew in this week to take a good look at the Kaufmann's stores they're buying before the inventory gets pillaged by clearance sale shoppers, in part an indication of the respect they have for the retailer they will replace.

"We're trying to understand the model that Kaufmann's used to be so successful," said Mr. Lakin, who wore a blue ski jacket and described himself as going incognito. "These stores were great stores for them. These stores were not broken."

Other department store operators also are making plays to capture new business. Another Pennsylvania department store operator, The Bon-Ton Stores Inc., announced last fall that it would buy a collection of Northern department stores, including Carson Pirie Scott locations in Illinois and Herberger's stores in Colorado.

Bon-Ton may be unwise in piling up debt to finance a strategy that takes it outside its niche of serving as the department store to smaller communities, said Mr. Davidowitz, the retail consultant.

Boscov's growth strategy makes more sense to him. It fits the company's long-term strategy and should take advantage of the middle market opportunity left by Federated. "In my view, Boscov's has this customer down pat," he said.


  1. I've never been to a Boscov's...but I only hear good things about their stores (from you and everyone else). It's amazing to see a "traditional department store" growing and thriving in such a competitive marketplace. There's a need to serve "the middle" after all.

    I suppose it makes sense that Boscov's didn't go after Federated's best real estate, like King of Prussia. It costs too much! Boscov's would rather have 10 stores at "so-so" malls than 3 stores at "A++" malls. After all, their customers probably don't shop King of Prussia anyway.

    I have high hopes for Boscov's, I just wish there were more chains like it elsewhere (especially on the West Coast). In L.A., the only thing between the lower end and the higher end will be Macy's.

  2. King of Prussia (and Ross Park, Cherry Hill and Tysons Corner) were off limits to Boscov's. Federated's no fool. They know if they let Boscov's into prime locations like those, it could be the death of them, or at least an erosion of business.

    Also, Boscov's down-home image doesn’t translate as well in high-fashion malls, though they can and have held their own against stores like that.

    With all the disgruntled department store executives out on the street and the availability of large spaces in prime malls, expect some action. It's inevitable.