Filene’s Basement Finds a Buyer
By Tom Ryan
While Filene’s Basement
filed for bankruptcy last week, the bigger surprise to many was that the
legendary Boston upscale off-pricer appears to have avoided liquidation.
Two real estate firms made a bid to buy 17 of its 25 stores – including
the Boston flagship and Union Square, NY locations – with plans to operate
them under the same upscale off-price model.
The bankruptcy was blamed
on the economic downturn, poorly performing suburban stores, liquidity
issues that impaired buying, and increased competition.
Particularly harmful has been the temporary closing since 2007 of its flagship
store in Downtown Crossing in Boston as a result of a stalled construction
project. The longtime tourist attraction, famous for its ‘Running
of the Brides’ wedding gown sales, accounted for one-fifth of sales. Steep
discounts at upscale retailers such as Saks during the downturn also impacted
Filene’s Basement’s rock-bottom prices on luxury goods formula.
But some believe the
same problems that led to its first bankruptcy in 1999 never left. These
include greater competition from bigger rivals such as TJX, as well as
over-expansion in the nineties. While facing strong competitors such as
Century 21 in New York City, opening branches outside its
core market diluted its overall appeal.
"The branch stores
didn’t have the automatic markdowns [of unsold merchandise], the lunchtime
traffic, the running of the brides," Michael Tesler,
a partner at Retail Concepts, told The Boston Globe.
"Instead of seeing Filene’s Basement as something special, people saw
it as a store like any other."
Bob Gottlieb, president
of Sceptre Marketing Group, agreed. "The
intrigue of shopping at Filene’s Basement was mostly a Boston thing, a
New England thing," he said.
But Stanley Chera,
the founder of Crown Acquisitions, one of the bidders, said credit issues
at luxury retailers is opening up rare access to quality designer goods
for upscale off-pricers like Filene’s.
"People would come
to us if we had the right merchandise. The magic of Filene’s Basement is
well-known," Mr. Chera told The Boston Herald.
Crown, along with the Chetrit Group,
said the chain was making money at the store level, but overhead was too
high.
"It’s
a wonderful brand, and we have the expertise and the credit and cash to
do what the company really needs: good buying, paying the bills, lots of
money behind it and quality merchandise at good prices like the Century
21 operation,"
Stanley Chera, the founder of Crown Acquisitions.
"It’s all current goods. It’s not stale merchandise."
The group’s $22 million
bid requires bankruptcy approval and faces an auction at which competing
offers may be offered.
Discussion Questions:
How should Filene’s Basement be reorganized? Is it still a viable brand
and concept? How would you rate the market opportunity for upscale off-pricers
such as Filene’s and Century 21?
Macy’s scorched earth brand consolidation left plenty of regional retail fans burning mad. Would keeping some of the May Company and Federated regional monikers have saved the day vs. going uni-brand and pushing localization efforts within the master brand (My Macy’s)? We’ll never know; however, I can’t see Filene’s becoming a nation-wide success story. The brand simply isn’t known outside of New England. If the plan is to make it a stronger regional player, that could be a real differentiator (back to the Macy’s aftermath).
Since its inception, there has been a difference in the main Filene’s Basement store and what it called its “remote” locations. The one was a close-out special..a unique shopping experience..and a general hoot. The others were a “me too” of private label merchandise and lower end “stuff.”
Of course, the dirty little secret is Marshalls and T.J. Maxx are selling more private label merchandise than ever before.
Filene’s Basement can compete…but it has to find a way to bring the excitement of “schlock” out to the suburbs.
The final price may be more than $22 million. That said and no matter what Crown Acquisition said, this is a real estate deal. Crown’s worst case, closing the retailer, is already a winner. (See Sears/Kmart) The challenge is that Crown does not get too carried away and can recognize if they can’t be successful merchants. Opportunistically, a great deal can lead a company to diversify. But, strategically, there should always be a connection to the core business and the strengths it brings.
Suspicion surfaces when Mr. Chera says, “…quality merchandise at good prices like the Century 21 operation.” Certainly, there has to be something more to make this acquisition successful as a retailer. We already have a merchant like Century 21. It is called “Century 21.” The lower price great fashion segments are well covered by TJX, H&M and Century 21.
Filene’s is an also ran. If it were a viable brand with a compelling message, their store traffic would have increased during this economic downturn. It apparently hasn’t happened. Filene’s Basement will continue to be what it communicates, the Basement. They have very little chance of turnaround.
I think this statement from the article sums it up.
“The branch stores didn’t have the automatic markdowns [of unsold merchandise], the lunchtime traffic, the running of the brides,” Michael Tesler, a partner at Retail Concepts, told The Boston Globe. “Instead of seeing Filene’s Basement as something special, people saw it as a store like any other.”
Filene’s basement has 2 downtown locations in Chicago–Loop and Magnificent Mile–and both were always crowded whenever I was in there. Lots of lunchtime traffic. Upscale merchandise. The only thing missing was the running of the brides. On the other hand, the only Filene’s Basement in the Philadelphia area was in a suburban discount strip mall next too DSW and Best Buy. It was just another store, the merchandise was not as good as Chicago or Boston and it was a bad location. It has closed.
Filene’s Basement could be a powerhouse if they are located in downtown zones, have all the bells and whistles, and stay true to the Filene’s brand experience, like the running of the brides. Boston isn’t the only place that has brides looking for deals on gowns. T.J. Maxx and Marshalls have a lot of junk and private label mixed with a little designer merchandise.
Filene’s Basement is known by savvy shoppers all over the country, and anybody who watches the TV news coverage of the annual running of the brides. They can come back if the brand is managed properly.
Filene’s has a killer business model that’s attracting healthy crowds in my urban neighborhood. The locals here eschew the upscale luxury chains (Neiman Marcus, Saks, Bloomingdale’s) for our humble Filene’s and Loehmann’s. That loud noise you hear is the sigh of relief coming up from my area….
As a New England resident I’ve always been amazed at how well and how poorly Filene’s Basement was run. The flagship Downtown location was a great destination shopping experience, but the suburban stores were horrible.
Filene’s Basement can be a very strong regional player and possibly expand beyond New England if they:
1) Improve the quality of the store experience at ALL locations.
2) Bring the automatic markdown approach or some version to ALL locations.
3) Differentiate themselves from TJX and Marshalls by #1 and #2.
4)Survive the construction issue at their flagship location in Downtown Crossing.
After so many regional brands have disappeared, I’m extremely happy to see Filene’s Basement survive. Now I just hope they give me a reason to go back to shopping with them.
Filene’s needs to go back to their basics. Keep open only their top stores, close the outlying stores, focus just on their best products that customers want, and become a smaller version of what it used to be. Small, nimble and sensitive to market changes are what allowed Filene’s to become successful. Growing too much and too fast are what killed it. Filene’s should consider itself a smaller chain that doesn’t grow its stores, but instead focuses on becoming and staying a dominant force in their market space.
I think there is room for more than T.J. Maxx and the 6 unit Century 21 chain in the off-price world. Part of the “treasure hunt” magic of places like T.J. Maxx and Century 21 is they don’t buy too deeply into any one style. The customer knows to buy it today, it could be sold out tomorrow.
Customers revisit off-pricers more frequently to see what new designer deal arrived this week. Century 21 also plays to many different income brackets, carrying labels from main floor to designer. In the last few years, Filene’s has traded up, resulting in at least modest comp store increases from 2006 to 2008. I think that if Filene’s tailors their price points and assortments by location, and sticks to designer labels, they have a chance to succeed.