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Just how low can Filene’s Basement go?

Under Syms ownership, sales and identity fade

Chief executive Marcy Syms toured the first joint Filene’s Basement-Syms store in Norwood last year. Chief executive Marcy Syms toured the first joint Filene’s Basement-Syms store in Norwood last year. (Suzanne Kreiter/ Globe Staff/ File)
By Jenn Abelson
Globe Staff / June 18, 2011

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After two bankruptcies and the loss of its Downtown Crossing flagship store, Filene’s Basement thought it had finally found a savior in Syms.

The New Jersey discounter scooped up the historic Boston bargain retail chain at an auction in June 2009, giving it another chance to stay alive. Syms’ vision was impressive: New stores featuring both merchants under one roof, a larger buying team with more clout, and promises to return Filene’s Basement to its birthplace in Downtown Crossing.

Two years later, however, Syms appears to be bringing down the Basement, according to some retail analysts and longtime customers. Facing massive losses, angry shareholders, and alienated shoppers, Syms has confirmed that it is now seeking strategic alternatives. That could include selling the business — putting the future of Filene’s Basement, the oldest off-price retailer in the United States, on the line once again.

“We originally were very enthusiastic when Syms purchased Filene’s out of bankruptcy,’’ said Andrew L. Sole, managing member of Esopus Creek Value Series Fund, which has a minority stake in Syms. “We believed the company could convert numerous underperforming Syms stores into more successful Filene’s branded stores, driving additional traffic and sales. Unfortunately, management and the board have not executed well, as evidenced by the sizable losses.’’

Syms last month reported a $17.8 million first-quarter net loss, or $12.1 million excluding one-time charges related to its purchase of Filene’s Basement, compared with a $7.4 million deficit during the same period in 2010. And sales at stores open at least a year, a key measure of a merchant’s health, fell 7 percent.

Syms spokeswoman Davia Temin declined to comment on what might happen to Filene’s Basement. But she said the retailer — founded in 1908 as a place to sell excess merchandise from the Filene’s department store upstairs in Downtown Crossing — has benefited from the new ownership. For example, Temin said, Syms kept open a Massachusetts distribution center that others might have closed, saved jobs, and has continued operating Filene’s Basement stores.

But the marriage between the two companies has been rocky. Retail analysts attribute Syms’ poor performance partly to the co-branding strategy pushed by chief executive Marcy Syms, whose father opened the chain’s first store in New York City in 1959. The new concept, with stores featuring Syms and Filene’s Basement signs together, was intended to blend the former’s extensive suit and tailored offerings with the latter’s designer clothes and accessories.

But the strategy has disappointed customers of both brands, according to some retail analysts. Last year, Syms said it would launch a dozen of the combined shops within two years. So far, only six have opened.

“It’s taking a little hiatus and we’re looking at the mix of merchandise,’’ Temin said of the co-branding plan.

Each company operates 20 stand-alone shops, largely along the East Coast.

Some customers cite the declining quality and variety of merchandise and anemic discounts at both the two-brand shops and stand-alone stores.

Sasha Sozonov, a longtime Filene’s Basement customer, has used the Filene’s Basement Facebook page to post critiques of the Syms strategy. He and other disgruntled shoppers have complained about the decline of The Vault, the Filene’s Basement section dedicated to exclusive international designers.

“Filene’s is becoming sad! It used to be the best place for bargains on high end designer clothes,’’ Sozonov wrote on the retailer’s Facebook wall earlier this year. “It is turning into a regular discount store full of no-name merchandise you can find at Marshalls for less.’’

Analysts say the off-price retail market has become increasingly competitive in the last few years as the economy eroded. TJX Cos., the Framingham merchant that operates T.J. Maxx and Marshalls stores, used the downturn as an opportunity to aggressively expand its footprint. The massive discounter, with about 2,200 shops nationally, has also launched in-store boutiques featuring high-end designer goods. It’s a strategy that allows TJX to better compete with the Basement without having to start a new chain.

Meanwhile, many designers who used to sell to Filene’s Basement and Syms are now opening their own outlet stores to hawk branded goods at a discount. That leaves less excess merchandise for Filene’s Basement and Syms to sell cheaply.

“Many of the best sources of Filene’s Basement merchandise have dried up. Brands have gone out of business, brands have been bought as exclusives by stores — such as Liz Claiborne at J.C. Penny; Target and Wal-mart and Sears brands such Merona, Lands’ End, Faded Glory, and on and on,’’ said Mike Tesler, president of Retail Concepts, a Norwell consulting firm. “So if Filene’s Basement is left with the same brands like Calvin Klein and Dockers that is all over Kohl’s and every other store, it has lost all its cachet and competitive advantage. They are not there yet but certainly that is the direction they are heading in.’’

Temin declined to comment on how the merchandise has changed at Filene’s Basement. But she said: “There are many more competitors both in the bricks and mortar space as well as the Internet with all of the off-price sites and daily deal sites,’’ Temin said. “It does make merchandising more challenging.’’

Neither Filene’s Basement nor Syms offers online shopping.

Patti Nurse walked out of a Filene’s Basement in Watertown last week empty-handed. It was the third time in three months she left without buying anything. Disappointment after disappointment has turned her weekly visits into monthly outings.

“The quality of merchandise isn’t the same, the sales aren’t as good. It’s nothing out of the ordinary,’’ said Nurse, of Waltham. “It used to be fun — there was the thrill of the hunt, which has been the Basement’s tagline. But they shouldn’t use it anymore.’’

Syms has also been hurt by the absence of the flagship Filene’s Basement with its famed automatic markdown system. The Washington Street store, once one of the city’s top tourist attractions, accounted for 25 percent of the chain’s sales before it closed in 2007 to make way for a redevelopment project that has stalled. Marcy Syms’ promise to reopen a shop in Downtown Crossing — in the original spot or a new one — remains unfulfilled.

As Syms considers its options, which could include going private, some investors are pressing executives to turn it into a real estate business. They want Syms to eliminate the poorly performing retail operation, but hold on to its buildings that have little debt. Under that scenario, Syms could simply sell off its brand name and merchandise, or more successful off-price retailers, such as Ross Stores or T.J. Maxx, could acquire the leases and inventory.

“Someone like T.J. Maxx could take the retail. I don’t know whether they would keep [Filene’s Basement],’’ said Thomas Graham Kahn of Kahn Brothers Advisors LLC in New York, which owns close to a 5 percent stake in Syms. “In Boston, people go gaga over Filene’s Basement. . . . But it’s not that way everywhere. Filene’s Basement is a brand that doesn’t ring to me.’’

Jenn Abelson can be reached at abelson@globe.com.