The family-owned mall-based department store is rare, but not extinct. Take Boscov's, for example. With 50 stores in the mid-Atlantic region, Boscov's is unique in today's retail world of homogenous national chains.

First, it is a family-owned department store. Second, while many department store chains have trimmed their merchandise selection, Boscov's still offers a full line, including apparel, appliances, electronics and even fudge. “We are a classic American department store,” says Larry Bergman, the company's senior vice president of operations. “Where many other retailers have gotten out of bedding for instance, we still have one of the few full offerings of a classic department store.”

And the company is actually prospering. Even with retail consolidation and the proliferation of power and lifestyle centers, Boscov's strategy shows there is still room in the crowded retail landscape for regional department stores. “But they have to have a niche and the customer has to feel it,”says Jeff Green, president of retail consultancy Jeff Green Partners.

Founded in the 1920s in Reading, Pa., by Russian immigrant Solomon Boscov, the chain has about $1.1 billion in annual sales. Now, it is expanding in a crowded market with its gutsiest move ever. In one fell swoop, Boscov's increased its store count more than 20 percent when it bought 10 former Federated department store sites in Maryland, New Jersey and Pennsylvania: two Kaufmann's, three Macy's and five Strawbridge's. Neither Boscov's nor Federated would reveal how much was paid for the spaces, but Federated said the deal is part of the $400 million to $500 million it expects to raise from the disposition of 84 redundant spaces.

A major turning point in Boscov's history, the deal comes after some serious soul searching. Executives considered a possible sale, with the pending retirement of former Boscov's Inc. Chairman Albert Boscov, son of the company's founder, and Edwin Lakin, president.

“When the owner gets to a certain age, every other private company has to make this evaluation,” says Howard Davidowitz, chairman of retail consultancy Davidowitz & Associates Inc. Recently, as its 78-year-old founder Monroe Milstein neared retirement, former family-owned retailer Burlington Coat Factory sold its assets to private equity firm Bain Capital Partners LLC for $2.06 billion.

But in Boscov's case, “what they decided to do is continue the business,” says Davidowitz. “They've said, ‘We have the next generation of management and we are going forward.’” That next generation comes in the form of Kenneth Lakin who earlier this year took over as chairman and CEO of Boscov's Inc. from his father Edwin and his uncle Albert Boscov. Lakin made it clear that he intended to ramp up the company's expansion from about one or two new stores a year to as many as five.

Tradition. Tradition.

For its customers in many mid-Atlantic secondary markets, Boscov's is a traditional department store with moderate prices. It is also heavily promotional. For instance, for Valentine's Day, the store offered a 76 percent sale on bed sheets and towels.

And it does so with a smile. In a 2005 poll conducted by the National Retail Federation, Boscov's was ranked fifth in customer service, after Nordstrom, Coldwater Creek, Marshall Field's and Kohl's.

“I think people here feel it's an integral part of the community,” says Frank Ullman, general manager for Cedar Shopping Center Inc.'s Shore Mall in Egg Harbor, N.J., which has a Boscov's anchor. Cedar recently purchased the Shore Mall for $33.65 million, partially due to the success of its Boscov's anchor, which is reported to have the highest sales per square foot in the chain.

So how does Boscov's compete? First, by being a smaller private company, it can be nimble. “To take on 10 new stores in a small base and make that decision as quickly as they did is an example of how they can be opportunists,” says Green.

Also, Boscov's knows its customer. This combination of flexibility and knowledge allows it to respond quickly to changes in the market. For example, one of its stores is located at the Coventry Mall, owned by the Stoltz Management Co., in the traditionally blue-collar community of Pottstown, Pa. In recent years, however, white-collar professionals who work in nearby Philadelphia have moved to the area. To accommodate the shifting demographics, Boscov's started to shelve more popular and well-known apparel brands such as Nautica and Polo, says Brian Molchany, Coventry general manager. “This chain is very strong when it comes to reacting to the market changes,” says Molchany.

“Boscov's is successful partially because they are always expanding the type of products they are offering,” says Ullman. “If there are certain products in the store that are doing better than others, they will expand one area and decrease another.”

Boscov's is also able to compete in today's marketplace, while remaining true to its roots, by adapting to more modern methods of retail when necessary. Currently, its Web site is expanding with sales rising 20 percent each year, say company executives.

It's this adaptability to a changing market that has helped other family-owned department stores survive. Another regional department chain, Von Maur, has turned to lifestyle centers in recent years for its expansion. Recently, the high-end Midwestern department store with about two dozen stores, said it would open a new location at lifestyle center Corbin Park in Overland Park, Kan.

Bergman says he could not say if going to lifestyle centers was a possible future route of expansion for Boscov's. “There's no reason that they couldn't do it, especially in small secondary markets where there is a lot of lifestyle potential,” Green says.

For now, however, Boscov's will have to absorb this large chunk with each new store requiring as many as 400 workers, says Bergman. “Time will tell if this was a good decision,” says Bernie Slome, vice president of business development for ICC/Decision Services, a Wayne, N.J.-based consultancy firm that advises retailers.

“It is kind of surprising that after having been fairly static Boscov's is now increasing its size,” says Britt Beemer, president of America's Research Group. “On the other hand, they might have gotten an incredible deal, because Macy's had to get out of these spaces.”

The Federated purchase puts Boscov's into some new markets and also increases its presence in existing ones. It now has three stores in the greater Baltimore area, including Glen Burnie, Md., for example. Up until the Federated purchase, its closest store was 60 miles away in Frederick, Md.

The store acquisitions also allows the chain to expand further into Western Pennsylvania. Instead of having one store in the Pittsburgh area, located at the Beaver Valley Mall, they will have a total of three. Having a larger market concentration lets them maximize advertising dollars, which is especially important to a heavily-promotional retailer like Boscov's, say industry analysts.

For future expansion, Boscov's says it will focus on the mid-Atlantic states it's already in, and peripheral areas as well.

“We would consider any of the regions of the six states that we are in and the states around it as possible growth targets,” says Bergman. He also said the company has an interest in Virginia; it opened its first store there last year at Danville.

While industry analysts seem hopeful of the chain's future success, they caution that Boscov's can retain its advantage of flexibility and market knowledge only if it remains a regional player. “It's not going to go charging all over the place, because you are going to go broke,” says Davidowitz.

Going nationwide would also cause the company to lose its edge in customer service. “I would say that their size and being that type of department store they are allows them to provide a much higher level of customer service than you will find in the larger chains,” says Joseph Coradino, president of services in charge of retail operations for Pennsylvania Real Estate Investment Trust. Boscov's has the largest concentration in PREIT malls with about eight locations in its portfolio. “That service helps to create a loyal customer.”

For now, Boscov's is on a roll as a regional player, especially since the wave of consolidation has removed a direct competitor. Like Boscov's, May Departments stores, such as Strawbridge's and Kaufmann's, were price-sensitive retailers geared more toward the middle-class consumer in search of a bargain.

But with those brands now gone, Boscov's has the opportunity to pick up those consumers. Says Coradino: “They used to be the ‘other store,’ but now they will be ‘the store.’”

DEPARTMENT STORES

PROBLEM:

How does a mall-based department store survive in a retail world of category killers and trendier lifestyle centers?

SOLUTION:

By finding a niche as a regional player. Boscov's remains competitive in its markets by offering bargains on its merchandise mix, which spans electronics to toys to fudge. Boscov's is also being proactive in expanding, taking away mall space from future competitors in core markets.

BUZZ:

Boscov's made headlines recently with its surprising acquisition of 10 former Federated stores, including two Kaufmann's, three Macy's and five Strawbridge's. In the malls where Boscov's is taking former Macy's space, Federated is taking Hecht's space, which is larger, and converting it into Macy's.

DATA:

The acquisition increases Boscov's total store count to 50. It's part of the new management's plan to ramp up expansion from only one or two stores a year to as many as five. Currently in six mid-Atlantic states — Delaware, Maryland, New Jersey, New York, Pennsylvania and Virginia — Boscov's is looking to expand in those states and possibly outlying areas.