How he rescued Boscov's

If the cynics had been right a year ago, no one would be heading to Boscov's today for a box of Godiva chocolates, a Snuggie, a Holiday Barbie, or anything at all.

That's because all 39 Boscov's stores would be out of business, just another carcass at the side of Recession Road. Not the survivor that made it to Black Friday 2009.

The odds were against the Reading company when it went bankrupt just weeks before last fall's stock market crash.

There was, conventional wisdom said, no realistic way to rescue its thousands of regional employees, dozens of stores, or century-old legacy. No money. No banks willing to step into the economic meltdown with emergency loans. No hope.

But in crunching the numbers that spelled doom for the nation's largest family-owned department-store chain, the doubters underestimated the power of a pint-sized 79-year-old man.

Had their spreadsheets been able to tabulate big-time heart and brains, they would have predicted a different outcome. Because Al Boscov is no ordinary businessman.

"I can dance, I can sing," Boscov joked later in a Manhattan elevator, tap-dancing in a charcoal suit to an absurd ditty about saving the company. The vaudevillian flash ended as the doors opened. "That's what did it," he said, and hopped out.

It would, indeed, require an extraordinary businessman to pull off a Rocky-worthy win against an economy devouring itself: a savior who was beloved, not feared, but no-nonsense when needed; one with more friends than enemies; who preferred details and long hours over swagger and power lunches.

One year ago this week, a federal bankruptcy judge gave Boscov and a group of investors, including his family and several counties and towns in Pennsylvania and South Jersey, the go-ahead to buy the chain out of Chapter 11 in a deal valued at more than $300 million.

The company had fallen out of family hands and into bankruptcy in August 2008 with $90 million in unpaid bills, but was returned to family stewardship by December. The recovery was so swift it astounded the judge who closed the case a few months ago, and elicited praise even from the attorney for vendors who lost millions.

The rescue meant Boscov's would be saved from the prospect of ownership by outsiders who, if their patience wore thin, might sell off the chain like so much worn furniture at a yard sale before turning out the lights forever.

"It bothered me that it was going to be liquidated," Boscov said, emotional at the thought of it. "I also knew that there are no jobs for these people." Employees, he meant, who in his book are as worthy as top executives.

Boscov's stores had helped revitalize Reading, Vineland, and Wilkes-Barre, haggard after being abandoned by industry through the years. They employed 5,000 Pennsylvanians and several thousand more in neighboring states.

So Boscov called his friends for help. And they said yes.

"He leveraged off of 50 years of doing business and being a good businessmen and being a good friend to a lot of people," said Philadelphia lawyer Scott Esterbrook, of Reed Smith L.L.P., who helped coordinate the rescue effort last winter. "Nobody that I know could have done what Al Boscov did."

Esterbrook worked side by side with Boscov 16 hours a day between Halloween and Christmas 2008. The pair huddled and haggled in bare-bones offices tucked behind the ground-floor customer-service desk of the Reading East Boscov's store, along a highway named for Al Boscov.

Esterbrook discovered Boscov's fierce intellect and famously disarming one-liners. He watched him leave the office each night, tossing legal documents into a beat-up plastic shopping basket and heading home in his Volvo for a round of phone calls that would end at midnight. And he listened as Boscov wooed gun-shy investors in the worst economy in generations.

"I can't tell you how many times I was on the phone with people acknowledging that, if it wasn't Al Boscov on the other line, they wouldn't even be having the conversation," said Esterbrook, who as recently as last week was at Boscov's headquarters. "People who helped him get out of it did it because they had the utmost respect for Al Boscov."

Although the privately held company does not report its performance to financial regulators, Boscov and others say it is doing well as it enters its first holiday shopping season since emerging from bankruptcy. Stores opened yesterday with door prizes for Thanksgiving customers and enthusiastic workers.

That's because Boscov, now 80, is back in charge. He had retired from the helm in 2006. Employees, investors, and lenders are delighted that he resumed running the $1 billion company a year ago.

"Al Boscov is not only a merchant, but he's a very solid citizen. He's got integrity. He's got all of the qualities that make for relationships," said Philadelphia retail real estate mogul Ron Rubin, who kicked in $10 million of the $100 million in cash used to buy back the company in a deal that included an additional $200 million in financing.

"He's an exceptional human being, and he's also extremely competent in his business," said Rubin, chairman and chief executive officer of the Pennsylvania Real Estate Investment Trust, which owns 38 East Coast shopping malls, including Cherry Hill, Moorestown, Willow Grove, and Plymouth Meeting.

Rubin's donation was not charity - Boscov's stores anchor eight of his malls. But he described Boscov as a philanthropist and sharp businessman who has raised trustworthiness to an art.

Of course, plenty of businessmen are kind and bright, said Rubin, 78, a fixture in Philadelphia's political and power circles.

But Boscov is "very unique," he said. "Write a good article about him, 'cause he's a good guy."

The youngest of four children born to Russian immigrant Solomon Boscov, Al Boscov grew up in his father's general merchandise store in Reading. During the Depression, the family lived upstairs; trains roared by outside.

On Sundays, the children would hop into bed with their father. "He'd read the funnies to us," Boscov said. Then they'd take long walks and listen as he told stories of fleeing Russia penniless and alone.

"Shirley, John, and I were expected to be in the store from the ages of 7 or 8," he said. "But we really enjoyed being with our father."

One of Boscov's first jobs: killing flies in return for a dime - just enough for the movie theater.

"It was hard to catch flies because they don't always want to be caught - plus, I was short," said Boscov, who stands just a few inches taller than his late father, who was 4-foot-8.

Boscov had to kill 30 flies to earn the dime - so hard that, after the first time, he concocted a scam. "I realized that dead flies looked the same the next week," he said, and he passed them off as new catches.

But Solomon Boscov was no dummy. "He gave me a lecture on integrity," Al said. "That week, I didn't get the dime."

At 6:36 a.m. on a Thursday in mid-March, a Bieber Tours bus rolled out of the Boscov's East parking lot with Al, and bagels, yogurt, and bananas for the few buyers headed with him to Manhattan's Seventh Avenue garment district.

The bus was making its weekly trip to the Big Apple for something done less frequently at bigger chains: schmoozing with vendors.

Wal-Mart can get good prices by threatening not to carry a company's merchandise. Boscov's has to work a different angle: walk into a vendor's office week after week with a wink, a smile, and the figurative box of chocolates in place of a big stick.

"Sometimes, you don't always have to win," Boscov coached the buyers on the bus. "Sometimes, you just have to learn to smile."

Only a handful of buyers were aboard - the bus trips were discontinued before bankruptcy. A disgusted Boscov brought them back.

"It's the stupidest way to go out of business: saving money," snapped Boscov, whose jocular tone disappeared, replaced by a harsh one. "The cost of sending the Bieber bus is $52 a ticket," a bargain compared to sending employees up there on their own.

(That sharp-tongued side also came out after a Bankruptcy Court hearing in Wilmington late last year. As reporters fired off questions to Boscov and his nephew, Ken Lakin, who was in charge when the company hit the skids, Boscov rebuked Lakin, telling him to keep his mouth shut.)

During the four months between the Chapter 11 bankruptcy filing on Aug. 4, 2008, and Boscov's rescue of the company, fear was pervasive, employees said.

"Traumatic," said Kyle Wegman, 41, once an 8-year-old Little Leaguer for a Boscov's-sponsored team in Reading.

"None of us had a road map for what to do, how we should approach this," said Wegman, a 20-year veteran who is divisional merchandise manager in charge of young men's and boy's goods.

It was also unnerving for Brian Nugent, a fast talker who feasts on the horse-trading that makes for a sweet deal on men's tube socks or silk ties.

Nugent, 49, had become hooked on his 16-hour days as general merchandise manager for men's and boys' wear. Bankruptcy could have meant an end to all the fun.

"When you're working 12, 13, 14 hours a day, you've got to just bury yourself in the process and hope that at the end of the day there's going to be a good outcome," said Nugent, a 23-year veteran.

Boscov's went bankrupt 21/2 years after the retirements of Al Boscov, chief of the retailing operation; and his brother-in-law Ed Lakin.

The patriarchs cashed out $180 million of their holdings when they retired, Boscov said.

Under the subsequent leadership of Ken Lakin, the company embarked on a 10-store expansion, gobbling up sites that had been vacated by Strawbridge & Clothier and others. The chain took out a recapitalization loan and sold its customer credit-card accounts for $199 million to cover costs.

But as the economy soured in 2007, customers cut back on shopping. Banks became more reluctant to help businesses stay afloat. And by 2008, with the newer stores draining the rest of the chain, Boscov's had stopped paying its vendors for merchandise.

The company secured a $60 million loan from Bear Stearns right before the latter went under. The Boscov-Lakin families stepped in with $22 million of their own cash to reduce the principal to $38 million.

But it was little help.

When Boscov's filed for Chapter 11 bankruptcy protection that August, it set about shutting down its 10 least-profitable stores and put its assets up for sale through auction. Soon, it also laid off 500 of its remaining workers.

Meanwhile, bankrupt Mervyn's L.L.C., a regional department-store chain in California, was going out of business. And in mid-September, Lehman Bros.' bankruptcy sent financial markets into a tailspin.

"Everybody was really unsure about what was going to happen," said Jennifer Cardinal, 25, of Exeter Township, Berks County, who had worked for Boscov's since graduating from college.

By October 2008, Versa Capital Management, a private equity firm that was the only bidder for Boscov's, still had not lined up all its necessary financing. Boscov worried that the only other suitors would be liquidators. So discreetly, he began soliciting cash from potential investors to assemble a bid.

When his intentions became public, some opposition emerged from lawyers for Boscov's vendors and other unsecured creditors, who were owed $90 million. Had the patriarchs not taken out so much cash when they retired in 2006, they argued, the company could have weathered the economic storm.

Eventually, those critics would support Boscov's purchase of the chain. Boscov said he and his brother-in-law had left behind ample cash and passed along most of their retirement payouts to their children and grandchildren.

The real problem, he said, was that expanding by 10 stores at once proved too great a risk. "Had Kenny [Lakin] opened up one or two stores, he would have had no problem at all."

On Nov. 21, 2008, the Boscov-Lakin family bid of $305 million was approved by U.S. Bankruptcy Judge Kevin Gross. Soon after, an e-mail hit employees' inboxes. Boscov got on the public-address system at the Harrisburg East store. "We're back!" he declared.

Applause burst out as Andrea Mills, 29, a buyer of young men's merchandise, walked through the handbag department.

"Customers literally started cheering," said Mills, a 12-year employee from Reading. "Sales clerks started cheering, like, 'It's over! We're back, we're going to succeed and we're going to win.' "

Boscov would later apologize to his workers in a video. "He actually broke into tears," said buyer Edwina Miller, 54, a worshipful employee for 40 years. "You would never see that from the president of Macy's."

It had been years since Boscov last walked through the glass doors of the Doneger Group.

The folks couldn't say enough nice things when he showed up in March at the Seventh Avenue fashion-advisory and consulting office. He had come for a crash course in the latest trends, everything from screen-printed T-shirts to flowing dresses.

"I could talk for hours on Albert," said president Abbey Doneger, who once watched Boscov crawl on his hands and knees to help a customer find her right size.

How did Boscov save the company? Wilkes-Barre friend John Pomerantz, who used to head the women's-apparel manufacturing giant Leslie Fay Cos., had an idea.

Pomerantz, 76, doubted his old buddy could rescue Boscov's: "I didn't think he would do it because I thought he was too old for it.

"He must have had some money," Pomerantz said, grinning.

"You know what it took?" Boscov replied. "It took an investment of the family of $63 million. It took the governor putting up $35 million. We have 5,000, 6,000 people working in Pennsylvania. It took four cities: Scranton put up $3 million of their own [federal loans]. Wilkes-Barre didn't want to see us leave a downtown store. Vineland, N.J., put up $3 million, and Atlantic County, New Jersey. We had $110 million in order to get the banks even to take any interest."

Family and business acquaintances committed cash - itself a huge feat. But Boscov needed more to get banks to sign on, too.

Six counties and two cities in Pennsylvania, plus two cities in South Jersey, came to the rescue.

The 10 governments were entitled to federal redevelopment loans. They pledged to pass $47 million worth along to Boscov, agreeing to back them in the event of a default. Gov. Rendell smoothed the way by saying the state would guarantee those issued in Pennsylvania.

Critics suggested Boscov was being rewarded for campaign contributions to Rendell. Boscov said he supported Rendell through the years only for his work in helping steer revitalization grants to his beloved hometown, Reading.

Scranton pledged $3 million to protect its downtown mall, anchored and redeveloped in 1990 with help from Boscov. The thinking was, "If we don't go through with this, the whole mall will shut down," said Linda Aebli, of the city's Office of Economic and Community Development.

As Abbey Doneger put it in his office that March day in New York: "Without Albert, the money doesn't happen. Without Albert, the municipalities aren't investing."

Six hours at Doneger's and a T-shirt deal later, Boscov's 14-hour day wound down. On the bus ride home, he gave a prize to the buyer who scored the best deal. He cracked jokes while flipping through a legal pad full of notes.

These days, the buses are loaded for trips to Manhattan. And morale is high, said Wegman, who played for Boscov's as a Little Leaguer.

"It feels good. The job market's tight out there, and it feels good to work for a good company."

Go to http://go.philly.com/boscov to track developments in the Boscov's department store chain from the threat of bankruptcy last year through the court proceedings and Al Boscov's success in regaining control of his family's company. Features a video following Boscov on a buying trip to New York. EndText