Filene's Basement Corp., which has steadily lost its hold on bargain-hunting shoppers, filed for bankruptcy protection yesterday after jittery suppliers began to withhold merchandise.
"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," said Samuel J. Gerson, chief executive of the Wellesley, Mass., company.
The firm said it will keep its 51 stores open during the bankruptcy proceeding, including three stores in Washington and one each in Rockville and Baileys Crossroads.
The Chapter 11 filing bars lawsuits by creditors while the company tries to stem its losses, reorganize its finances and emerge as a viable company. Gerson said the company can now rebuild depleted inventories before the holiday selling season.
"This is a setback," he said in an interview yesterday. "It is not a knockout punch."
Filene's Basement is among the best-recognized names in discount retailing. Its special sales often draw crowds of customers who--in the past--haven't been afraid to strip in the aisles or engage in a fierce tug of war over a Calvin Klein dress or other marked-down designer clothing items.
"Filene's Basement has a name that once was heralded in American retail," said Kurt Barnard, president of Barnard's Retail Trend Report. "Women went there just for the pleasure of bargain hunting, even wealthy women. And the stores were beautifully represented. That's not there today. It was lost many years ago."
Although sales have increased, the company has lost money in four of the past five years, suffering a $9.5 million loss in 1998 on $588.5 million in revenue. Its troubles worsened after a similar retailer, Loehmann's Inc. of New York, filed for bankruptcy protection in May. Spooked suppliers began to hold back on merchandise.
Filene's Basement said yesterday that it has a commitment for a $135 million loan from General Electric Capital Corp. and Paragon Capital LLC, subject to court approval, to finance operations.
Like Loehmann's, Filene's Basement has discovered that the bargain-basement business isn't what it used to be. Discounters such as T.J. Maxx and designer outlet stores have bitten into Filene's Basement sales, and in response to the discount threat, department stores have been quicker to mark down prices.
That means shoppers like Rhonda Mims, a lawyer who lives in Alexandria, are sometimes skipping Filene's in favor of trips to Bloomingdale's and Nordstrom. "I think sometimes I find better stuff at department stores," Mims said yesterday as she left the Filene's Basement at 14th and F streets in the District.
Like Loehmann's, Filene's Basement may have confused customers by straying from its roots. Today its outlets look more like department stores, carrying such items as picture frames and crystal, than bare-bones basement operations.
In recent years, customers have also complained about the quality of the designer apparel at Filene's Basement, as well as the number of lesser and unfamiliar brands.
"The higher-quality stuff is mixed in with too much really, really low-end stuff," said Cheri Manning, a multimedia producer shopping yesterday at the Filene's Basement in Friendship Heights.
Filene's Basement is an offshoot of Filene's department store in Boston, which opened a wildly popular discount section in its basement in 1908. Filene's is now owned by May Department Stores Co. in St. Louis and has no connection to Filene's Basement.
The original Filene's Basement store draws more than 15,000 people a day, making it Boston's second most popular attraction.
"The problem is, I remember what Filene's Basement used to be, up in Boston, because I came from there," Manning said. "It was the place to go for a bargain."
Filene's Basement encountered more problems when it expanded into the suburbs. The stores tend to do better in cities like Washington, where demand for high-end career clothing is high. "They may not have struck such a chord in suburban customers," said Marcia Aaron, an analyst with Deutsche Banc Alexander Brown in New York.
Staff writer Margaret Webb Pressler contributed to this report.
* Business: Off-price specialty clothing chain.
* Origins: Edward Filene began selling marked-down merchandise in the basement of his pricey Filene's department store in downtown Boston in 1908.
* Based: Wellesley, Mass.
* Area stores: 1133 Connecticut Ave. NW, Mazza Gallerie and Shops at National Place in the District; Rockville; Baileys Crossroads.
* Employees: 3,690
* Annual revenue**: $588.5 million
* Annual net loss**: $9.5 million
* Web address: www.filenesbasement.com
**For year ended in January 1999
SOURCES: Hoover's, Bloomberg News
CAPTION: This sign sits in the lobby of the store on Connecticut Avenue NW.