Boscov's seeks private financing to refill inventory

Contending with a cash shortage that has limited its ability to sufficiently stock its store shelves, Boscov's said yesterday that it was looking to the private-equity world for a loan to replenish inventory in time for back-to-school season.

The Reading chain, whose department stores anchor a number of Philadelphia-area shopping malls, hopes to have the financing in place in a matter of weeks, said chief executive officer Ken Lakin.

Lakin said the company was exploring a private-equity deal because traditional lenders had cut back acutely on loans - even to existing businesses such as retailers, who typically use revolving credit lines to pay for merchandise.

Lakin would not confirm elements of a report in Friday's New York Post, which reported that a number of suppliers had halted merchandise shipments for lack of payment, and that two major lenders had turned down financing requests from Boscov's.

But Lakin described encountering "a very difficult financial market right now."

"It's across the whole country, it's just about every banking institution," he said. "It's a real phenomenon. I haven't spoken to anybody who's seen anything quite like it. Every lending institution has pulled back severely."

Lakin said he was confident that a deal would be in place soon and that store shelves, some of which have been going bare, would be replenished in short order. The back-to-school shopping season is weeks away.

He described the challenge confronting the chain his family founded 97 years ago as a "perfect storm."

The high price of gasoline and the economic downturn that struck a year ago with the implosion of the subprime-lending market have hurt the retail sector. Fewer people are buying things.

Retailers are seeing their sales and profits drop and, to avoid a glut that can send profits into the red, they have cut back on orders. That affects how much money banks are willing to lend them - revolving credit lines are based on a percentage of inventory, he said.

"Sales are down, you generate less income to make purchases, so you purchase less inventory," Lakin said.

"So it's a double-edged sword. If you bring the inventory in line with declining sales, your borrowing base declines and therefore you bring in less inventory."

Lakin said sales had declined markedly in home furnishings and bedding and, to some degree, apparel as customers have cut back to cope with the economic crunch.

Sales of flat-screen TVs, however, are strong, along with men's apparel and women's suits and dresses.

Lakin said the company had responded with cutbacks. It laid off 200 people at headquarters over the last six months and reduced the hours worked at its stores.

"I believe the company can survive, and we're really fighting to do that," he said. "We need the customers to vote in our favor."