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    MARKET EDGES

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When we conducted our Bankruptcy call on 7/16, someone asked me if we were late given that some companies had already filed. Well since then, we’ve had 2 more banks file, and one more retailer (Shoe Pavilion). In addition, now it appears that Boscov’s, the second largest private department store chain, may be headed in the same direction. The factoring arm of CIT’s trade finance group is still supporting backorders, but put a “hold” on future orders to fill fall/holiday inventory.

Some things you should know about (little-known) Boscov’s.
1) Largest family-owned dept store chain in the US, with revenue over $1 bn.

2) 49 stores in 6 states in the mid-Atlantic (from NY down through VA).

3) In 2Q06, Boscov’s bought 10 stores from Macy’s, in conjunction with satisfying anti-competitive claims when Federated bought May Dept stores.

4) The remainder of the portfolio used to be in line with the Macy’s of the world, but now competes more with JC Penney, Sears and other moderate retailers.

5) Also sells categories in addition to apparel – such as toys, candy, sporting goods, and stationary.

6) Inventory consists of virtually every publicly-traded wholesale brand.

Strategic issues to consider.
1) Could this be a positive as the industry right-sizes capacity to be in line with end demand? The answer is yes – but unfortunately we need about another 10 Boscov’s to put a dent in the macro call here.

2) A $1bn retailer acting desperate is not good. Excessive closeouts/promotions and striking more aggressive deals with vendors to secure any product to keep its head above water is not a positive sustainable trend. Note that this even holds outside of traditional. Dick’s Sporting Goods, for example, has a similar footprint and Boscov’s sells many of the same hardgoods and lower-end softgoods.

3) Keep in mind that it is often difficult for a bankrupt anchor tenant in a mall (which represents a fair proportion of Boscov’s stores) to actually end up as capacity being removed from the industry. Given the convoluted deals with the mall REITs, the property simply changes hands to others who fill the shelves with much of the same product.

We’ll be back soon with some deeper analysis on industry capacity.