Men's Wearhouse, Syms, and the battle for Filene's Basement
Rival chains expected to join the bidding for more than half of famed Hub retailer's stores
Men's Wearhouse and rival Syms are planning to bid for the bankrupt Filene's Basement chain and keep the 100-year-old brand alive with at least 15 stores, according to a Basement official with knowledge of the talks.
In the past few weeks, executives from the two clothing businesses have visited the Basement's headquarters in Burlington to learn more about the famed Boston merchant, which filed for bankruptcy protection earlier this month. Another bidder, Crown Acquisitions, has already offered $22 million to buy 17 of the Basement's 25 shops. Bids are due June 3 and an auction will be held on June 5.
"Both Men's Warehouse and Syms indicated they wanted to keep the Filene's Basement name," said the Basement official who could not be named because the talks are private. "There would be no benefit to buying it without the name and the 100-year history. The real estate is good - particularly in the Back Bay and Manhattan - but it's not that good to get rid of the Basement."
One former Basement official briefed on the talks said Syms, the New Jersey off-price merchant, is considering partnering with the New York real estate firm Vornado Realty Trust to help fund the acquisition and potentially take back the cheap, long-term lease for the Basement's flagship store in Downtown Crossing. Vornado owns the Downtown Crossing property - which has been shuttered since 2007 because of a stalled project to build a 39-story tower on the site. Vornado also owns several Basement locations in New York and New Jersey.
A report yesterday in the New York Post said Men's Wearhouse, the men's dress retailer based in Texas, and Syms, planned to buy Filene's Basement simply for the real estate and replace the sites with their own brands. Syms and Vornado declined to discuss the matter. Officials at Men's Warehouse and Crown Acquisitions did not return calls seeking comment.
In its Chapter 11 filing on May 4, Filene's Basement blamed its current crisis on the recent economic downturn, credit problems, poorly performing suburban stores, and the loss of the flagship store in Downtown Crossing. Vornado had been paying Filene's Basement $500,000 a month to help offset losses from the closing of the Washington Street location, but the firm halted payments without notice in January, according to court documents.
Laura Champine, a retail analyst with Cowen and Co. in New York, said the Basement's shops are the right size and location for Men's Wearhouse, which has a good balance sheet and could easily finance the deal. However, Men's Warehouse, with 1,000 shops, also might be looking for a new expansion vehicle. "They don't have experience in the discount business. But this is a small business so it wouldn't be a huge risk," Cowen said. "Though it does seem more plausible as a real estate transaction."
Madison Riley, a retail analyst with consultancy Kurt Salmon Associates in Boston, said it makes sense for Syms to pursue Filene's Basement as a growth strategy. "Both retail brands are in the same space so you could leverage the buying and administrative functions of both companies. It adds distribution and volume while leveraging expense," Riley said.
The Filene's Basement official with knowledge of the talks confirmed Men's Wearhouse and Syms see cost-savings opportunities in combining the Basement's back-end operations - distribution, finance, and technology - with their own systems. The official said several other people have inquired about the Basement but none have seriously pursued the business.
Additionally, Filene's Basement recently filed a notice under the Worker Adjustment and Retraining Act, which requires companies to provide 60 days notice before the closing a business, about plans to potentially lay off more than 1,600 employees - its entire workforce - if the winning bidder in Bankruptcy Court decides to shut down the Basement.
Boston Mayor Thomas M. Menino yesterday said he had not been informed about the two new potential bidders for Filene's Basement but is concerned about Downtown Crossing losing the beloved landmark famed for its automatic markdown system and Running of the Brides event.
"Syms is no Filene's Basement," Menino said. "I can't stop a proposed development, but I'd rather have a known product there that has been great for the community."
John Palmieri, the director of the Boston Redevelopment Authority, said he has remained focused on trying to resume construction on the Filene's site, where work crews ceased operations last November due to a lack of financing.
"Obviously, we think retail at that location is critical, and we hope the Filene's Basement flagship store will reopen in Downtown Crossing," Palmieri said. "But we also know the bankruptcy process will determine what happens."
He said he continues to talk with Vornado and Gale International, which co-owns the Filene's Basement Downtown Crossing location, about possible changes that would make the $700 million project financially feasible, but no solution has been identified. Even if the developers secured tentative financial commitments today, it would likely take another six months to close the deal and resume construction.
In the meantime, Palmieri said the developers are working with the city to improve the appearance of the work site, which looks like a massive bomb crater in the middle of Downtown Crossing.
"It's important that they improve the appearance of the site and stabilize it," Palmieri said. "They're talking to their engineers now, and they've been pretty serious about addressing the concerns the mayor raised a couple of weeks ago."
Jenn Abelson can be reached at abelson@globe.com. 