Filene's chain files Chapter 11

Bankruptcy follows shipment delays by worried vendors

August 24, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Filene's Basement Corp., which launched one of its prototype Aisle 3 stores in Towson last spring, filed for bankruptcy protection yesterday.

The troubled, Wellesley, Mass.-based chain said it was taking the step because its vendors, nervous over the company's condition, have delayed shipping inventory.

The off-price chain, which got its start in 1908 as the bargain-basement floor of Edward Filene's Boston department store and went public in 1991, said yesterday that it has no plans to close any of its 51 traditional Filene's Basement stores or any of four Aisle 3 stores, a weekends-only, warehouse-style superstore concept with locations in Towson Marketplace, New York and New Jersey.

The company, which began losing money in 1996, said it has cut its administrative staff by 15 percent, leaving 200 employees at its headquarters and 3,800 company-wide.

In its Chapter 11 filing in U.S. Bankruptcy Court in Boston, the company listed more than $200 million in assets and $149 million in debts.

Last month, Filene's Basement secured $125 million in debtor-in-possession financing from General Electric Capital Corp. and Paragon Capital LLC. Despite the financing, vendors remained concerned, interrupting the delivery of inventory and hurting sales, the company said.

Yesterday, the lenders increased the line of credit by $10 million. The retailer says it will use the financing to bring its inventory back to normal levels.

"With our store inventory below optimal levels, we determined it was in the best interest of all of our stakeholders to file for Chapter 11," so the company can restructure and stock up before the crucial holiday selling season, Sam Gerson, chairman and chief executive officer of Filene's Basement, said in a statement.

The company had reported a net loss of $14.9 million, or 71 cents a share, for the second quarter that ended July 31, blaming the loss on poor sales, due in part to insufficient inventory. Sales at stores open at least a year dipped 3 percent during the quarter.

Filene's Basement and other decades-old, off-price retailers such as Loehmann's Inc. have struggled in recent years in the face of cutthroat competition from outlet malls and mass discounters such as Wal-Mart and Target, said Walter Loeb, president of Loeb Associates, a New York-based retail consultant. Loehmann's, which started in 1921 in Brooklyn, N.Y., filed for bankruptcy in May and is closing 13 of its 69 stores.

"In every case, these unfocused discounters are no longer as attractive to the customer as they were in the past," Loeb said.

Filene's Basement said it will continue a strategy of looking to Aisle 3, the company's first new division, as a low-cost way to boost sales. When the first stores opened in March in New York and New Jersey and in April in Towson selling brand-name apparel and home goods at a discount, analysts hailed the move -- saying the Aisle 3 stores would be inexpensive to open while producing high sale volumes.

By opening only Friday, Saturday and Sunday -- and using the store space the rest of the week as a warehouse to turn over merchandise -- the company would be able to keep overhead, payroll and advertising costs low and pass the savings to consumers, Gerson had said in an interview in April. With Aisle 3, the retailer is targeting career-oriented men and women ages 35 to 60.

In its bankruptcy announcement yesterday, the company called the four Aisle 3 stores successful. The company said it will open four more Aisle 3 stores, all in the Chicago area, during the next two months. The 50,000-square-foot, no-frills stores attempt to be category killers in men's and women's suits, outerwear and shoes, offering low prices and a wide selection.

Though same-store sales fell during the most recent quarter, net sales rose 10 percent, the company reported.

Trading in Filene's Basement stock, which traded as high as $36 in 1992, was suspended yesterday at 91 cents a share.

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