Filene's Basement scrambles for cash
Bankruptcy possible as vendors pressure retailer for payment
By Jenn Abelson, Globe Staff | April 2, 2009
Filene's Basement, the famed Boston bargain merchant, is looking for money to pacify vendors who are threatening to push the company into bankruptcy because they have not been paid for months.
The latest move by the struggling retailer comes just weeks after Filene's Basement shuttered 11 of its 36 stores, including one in Framingham. The flagship Downtown Crossing location, which represented about 20 percent of the chain's sales, remains shuttered because of a stalled development project at the site.
Lawrence C. Gottlieb, chairman of the bankruptcy and restructuring practice at Cooley Godward Kronish in New York, and who represents more than a dozen vendors, said Filene's Basement had been unresponsive for months to requests seeking payment for merchandise.
Julie Davis, general counsel of Retail Ventures Inc., Filene's Basement's parent company, said yesterday the discount chain needs more liquidity. She would not rule out filing for bankruptcy protection or finding new buyers as options for the brand, known for its annual "Running of the Brides" wedding gown sale.
"We are considering all alternatives," Davis said. "We are continuing to aggressively pursue strategic alternatives for the benefit of our company and our valuable vendor partners."
In February, Retail Ventures put up an additional $7.5 million in cash collateral so Filene's Basement could borrow more money. But in a regulatory filing, the Columbus, Ohio, holding company said it believed Filene's Basement would need additional funds to satisfy its obligations.
This is the second shake-up in a decade for Filene's Basement, founded in Boston in 1908 by Edward A. Filene as a way to sell excess merchandise from his father's department store upstairs. The business expanded to nearly 56 stores by the mid-1990s but later scaled back after struggling in new markets. By 2000, the company shrunk to 14 stores and filed for bankruptcy protection.
In recent years, Filene's Basement tried to revamp its image, offering more upscale merchandise, upgrading the stores, and opening in prime locations, including Newbury Street in Boston. But the chain has been hurt by increasing competition from discounters such as Target and JCPenney, according to retail analysts. As economic conditions deteriorated, Filene's Basement decided to close one-third of the chain earlier this year after it failed to negotiate rent reductions with landlords.
Bernard Sands Credit Consultants, a New Jersey-based company that represents many of Filene's Basement's unpaid vendors, said the firm stopped supporting Filene's Basement in January after the discounter said it planned to close 11 stores, according to Bob Carbonell, Bernard's executive vice president and chief credit officer.
Carbonell said the retailer will have a difficult time attracting a buyer because it is too small and has been losing money for a long time. In the latest financial results available, Retail Ventures said Filene's Basement sales dropped more than 9 percent last year compared with 2007.
"The fact that Retail Ventures has not been putting money into the business in the form of capital expenditures - one could come to the conclusion that they are looking to dispose of Filene's Basement in some manner," Carbonell said. "But do you know anyone that wants to buy an apparel chain in this environment?"
Two years ago, the chain closed the Downtown Crossing store, which was known for its automatic markdowns. The company was hoping to reopen the store this year, but developers of the $700 million commercial and residential project it is part of have been unable to obtain necessary loans and the site remains a gaping excavation hole. It is unclear whether a bankruptcy protection filing by Filene's Basement will cause the project more problems. John B. Hynes III, one of the site's developers, did not return messages seeking comment.
Jenn Abelson can be reached at
abelson@globe.com.
