Aug. 4 (Bloomberg) -- Boscov's Inc., the 9,500-employee department-store chain founded in 1911 in Reading, Pennsylvania, filed for Chapter 11 bankruptcy protection in Wilmington, Delaware, today, citing decreased consumer spending.

Boscov's, which said in court papers that it's the biggest family-owned full-service department store chain in the U.S., will immediately close 10 of its 49 stores. The company said it will borrow as much as $250 million from a group of lenders led by Bank of America Corp. to help it restructure.

The collapse of the housing market and increased food and energy costs have led to ``a decline in the discretionary spending by consumers upon which the debtors' business depends,'' Michael Hughes, Boscov's executive vice president of capital development, said in court papers. The company has stores in six states, mostly in Pennsylvania.

A pullback in consumer spending has contributed to more than a dozen retail bankruptcy filings in the past year, including Mervyn's LLC, which operates most of its 177 stores in California, on July 29. It joins Goody's Family Clothing Inc., Linens n' Things and Sharper Image Corp.

Auction Procedures

Boscov's is seeking court approval of auction procedures for the selection of a liquidation firm to assist with store-closing sales. It is requesting an Aug. 12 auction. The company said it will liquidate about $34 million in merchandise at the sales to be commenced by Aug. 15.

The retailer has an agency agreement with Gordon Brothers Retail Partners LLC for about $35 million and is seeking a $50,000 termination fee if Gordon Brothers isn't the winning bidder. Other bids must exceed Gordon's bid by at least $75,000, according to court papers.

Boscov's listed $538 million in assets and $479 million in debts as of May 3 in the court filing.

Regional department store chains are more vulnerable to tightening credit and cuts in allowances from suppliers than national chains, said Burt P. Flickinger III, managing director of Strategic Resource Group.

Flickinger called Boscov's a ``solidly run'' retailer that has suffered from a concentration of stores in economically struggling communities.

`Threw Away Customers'

Department stores ``basically threw away their main customers'' as they cut back on service over the years, said Britt Beemer, chairman of America's Research Group in Charleston, South Carolina. For regional chains, ``their history in the communities is their biggest advantage,'' Beemer said.

James Schaye, chief executive officer of Hudson Capital Partners, a retail liquidation firm, agreed. ``Sometimes the larger department stores lose touch with their consumer.''

Schaye called Belk Inc., a Charlotte, North Carolina-based merchant with more than 300 stores, an example of a ``very well- run'' family department-store chain.

Boscov's and Belk's are ``in excellent locations, but they're still in malls,'' Beemer said, where customers have cut back on purchases.

Boscov's will close five stores in Pennsylvania, at Monroeville Mall in Monroeville, Montgomery Mall in North Wales, Oxford Valley Mall in Langhorne, South Hills Village Mall near Pittsburgh and Harrisburg East Mall in Harrisburg.

It will close three Maryland stores, at Marley Station Mall in Glen Burnie, Owings Mills Mall in Owing Mills, and White Marsh Mall in Baltimore.

The stores at Monmouth Mall in Eatontown, New Jersey, and Piedmont Mall in Danville, Virginia, are also closing.

Solomon Boscov

Boscov's history dates to 1911, when founder Solomon Boscov moved to Reading and sold goods to surrounding towns by horse and wagon.

The company filed for bankruptcy protection with seven affiliates after failing to refinance its debt, it said. Boscov's said it had sales of $1.25 billion last year. Boscov's Web site lists ``refurbishing plans for several existing stores as well as more opportunities for new Boscov's Stores on the drawing board.''

Boscov's $250 million loan will consist of a $225 million senior revolving credit facility to be funded with as much as a $25 million ``last out revolver advance.''

The 40 largest creditors without collateral backing their claims are owed a total of $32.6 million, court papers show. The three largest unsecured claimholders are Jones Apparel Group Inc., owed $3.1 million; Kellwood, owed $2.6 million; and VF1, owed $1.3 million.

The case is In Re Boscov's Inc., 08-11637, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net; Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: August 4, 2008 13:35 EDT