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                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT
                              --------------------

     THIS AGREEMENT, made as of the 2nd day of June, 1997, between Filene's
Basement, Inc. (hereinafter called the "Employer"), and William J. Carothers
(hereinafter called the "Employee").

     In consideration of the employment to be provided and the payments to be
made as set forth in this Agreement, it is agreed by and between the parties
hereto as follows:

                                    ARTICLE 1

                                   EMPLOYMENT

1.1 TERM AND DUTIES. The Employer shall employ the Employee, and the Employee
shall serve the Employer, as President and Chief Operating Officer of the
Employer for the Term (as hereinafter defined). During the Term, the Employee
shall perform and discharge, faithfully, diligently and to the best of his
ability, the duties and responsibilities as President and Chief Operating
Officer and in conformity with the directions of the Board of Directors of the
Employer (the "Board") or its designee and shall devote to the performance of
such duties and responsibilities his full time and attention. The Employee shall
be excused from performing any services hereunder during periods of temporary
disability and during vacations in accordance with the Employer's disability and
vacation policies. (See Exhibit A for Vacation Policy). For purposes of this
Agreement, "Term" means the period commencing on July 1, 1997 and ending on
January 31, 2001. Notwithstanding the foregoing, the Employer may, by written
notice to the Employee, elect to extend the Term beyond January 31, 2001, and if
the Employer so elects, the Term shall be extended on the date of such election
and on each day thereafter ("Renewal Date") to the third anniversary of such
Renewal Date unless on or before any Renewal Date the Employer shall give notice
to the Employee that the Term shall not be so extended. (Therefore, if the
Employer, prior to January 31, 2000, shall give notice to the Employee that the
Term shall not be extended, the expiration date of the Term shall remain January
31, 2001. If, however, the Employer gives notice to the Employee on or after
January 31, 2000 that the expiration date of the Term shall not be extended, the
expiration date of the Term shall be the third anniversary of the date such
notice is given.) References to the Term shall be deemed to refer the Term as
extended from time to time. The Employer shall also, acting through the Board,
seek to obtain the Board's nomination of the Employee as a member of the Board,
but the failure of the Employee to be elected as a director by the stockholders
shall not constitute a breach of this Agreement by the Employer.

1.2 COMPENSATION. In consideration the Employee's services during the Term, the
Employer shall pay the Employee cash compensation at an annual rate not less
than 

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the greater of his current base salary as set forth on EXHIBIT A hereto or the
base salary of the Employee most recently approved by the Board or its designee
("Base Compensation"). The Employee's Base Compensation shall be subject to such
increases as may be approved by the Board or its designee.

1.3 PAYMENT SCHEDULE. The Base Compensation specified in Section 1.2 hereof
shall be payable as current salary, in installments not less frequently than
monthly, and at the same rate for any fraction of a month unexpired at the end
of the Term. Any bonus compensation shall be payable at such time as the
Employer pays bonus compensation to its other senior executives.

1.4 EXPENSES. During the Term the Employer shall be allowed reasonable traveling
expenses commensurate with his position and shall be furnished office space,
assistance and accommodations to the character of his position with the employer
and adequate for the performance of his duties hereunder.

1.5 TERMINATION IN CASE OF DISABILITY. The Employee shall not be in breach of
this Agreement if he shall fail to perform his duties hereunder because of
physical or mental disability. If for a continuous period of 12 months during
the Term the Employee fails to render services to the Employer because of the
Employee's physical or mental disability, the Board or its designee may end the
Term prior to its stated termination date. If there should be any dispute
between the parties as to the Employee's physical or mental disability at any
time, such question shall be settled by the opinion of an impartial reputable
physician agreed upon in writing for the purpose by the parties or their
representatives, or failing agreement within 10 days of a written request
therefor by either party to the other, then one designated by the then Chief
Executive Officer of Massachusetts General Hospital, Boston, Massachusetts. All
expenses related to and including any medical, psychological, or physical test
performed or recommended by such physician shall be borne by Employer. The
written opinion of such physician as to the matter in dispute shall be final
and binding on the parties. In the event of the termination of the Employee's
employment by reason of disability, the Company shall pay the Employee (a) an
amount equal to any Base Compensation through the termination date which is
unpaid as of such termination date, (b) an amount equal to the sum of any
annual bonus unpaid as of such termination date for any year ending prior to
the year in which the termination occurs, and (c) for the year in which such
termination date occurs, an amount equal to the "Prorated Annual Bonus" (which
shall mean that portion of the annual bonus that the Employee would have
earned, if he had remained employed for the entire year, multiplied by a
fraction of which the numerator is the number of days during which the Employee
remained employed in such year and the denominator is 365) .

1.6 TERMINATION IN CASE OF DEATH. The Employee's employment shall terminate upon
his death. In such event the Company shall pay to such person as the Employee


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shall have designated in a notice filed with the Company, or, if no such person
shall have been designated, to his estate, (a) an amount equal to any Base
Compensation through the termination date which is unpaid as of such termination
date, (b) an amount equal to the sum of any annual bonus unpaid as of such
termination date for any year ending prior to the year in which the termination
occurs, and (c) for the year in which such termination date occurs, an amount
equal to the Prorated Annual Bonus.

1.7 TERMINATION OF EMPLOYMENT WITHOUT CAUSE. If the Employer terminates the
Employee without "Cause" (as defined below) because his services will no longer
be required during the remainder of the Term, the Company shall pay the
Employee (a) if such notice of termination is given prior to January 31, 2000,
the greater of (x) $180,000 or (y) an amount equal to the Base Compensation
payable from the date of Termination through the end of the Term, and (b) if
such termination occurs after January 31, 2000, an amount equal to the Base
Compensation payable from the date of termination through the end of the Term,
such payments to be made in monthly installments by the Company until paid in
full. In addition, the Company shall cause all of the Employee's stock options
to vest and become immediately exercisable in full.

1.8 MITIGATION. If the Employee receives notice from the Employer pursuant to
Section 1.7 hereof, the Employer shall acknowledge by notice to the Employee
that the Employee offered to continue to render services to the Employer in
accordance with the terms hereof and that such offer was rejected, and the
Employee (subject to Section 2.2 and Section 2.3 hereof) shall be free to become
actively engaged with another business and shall use his best efforts to find
other comparable employment. Upon the payment to the Employee of compensation
for employment or other services by any unaffiliated third party, the Employee
shall automatically cease to be an employee of the Employer. The Employee shall
promptly notify the Employer of any such employment or other services and of the
compensation received, to be received or receivable from this subsequent
employer or any such third party. Any amounts received or receivable by the
Employee during the remainder of the Term as a result of his employment by or
services to another employer or third party shall be applied to mitigate and
thereby reduce the amounts payable to the Employee under the provisions of
Section 1.7.

1.9 TERMINATION FOR CAUSE. The Employer may terminate the employment of the
Employee and this Agreement and all of its obligations hereunder, except for
obligations accrued but unpaid to the effective date of termination, for Cause
upon notice given pursuant to this Section. As used in this Agreement, the term
"Cause" shall mean:


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(a)  an intentional act of fraud, embezzlement, theft or any other material
     violation of law whether or not in connection with the Employee's duties 
     or in the course of his employment with the Employer;

(b)  intentional wrongful damage to material assets of the Employer;

(c)  intentional wrongful disclosure of material confidential information of
     the Employer;

(d)  intentional wrongful engagement in any competitive activity which would
     constitute a material breach of the duty of loyalty; or

(e)  intentional breach of any of the Employee's covenants contained in this
     Agreement or any stated material employment policy of the Employer.

     No act, or failure to act, on the part of an Employee shall be deemed
"intentional" if it was due primarily to an error in judgement or negligence,
but shall be deemed "intentional" only if done, or omitted to be done, (a) by
reason of gross negligence or (b) by the Employee not in good faith and without
reasonable belief that his action or omission was in or not opposed to the best
interest of the Employer. Failure to meet performance standards or objectives of
the Employer, other than by reason of gross negligence, shall not constitute
Cause for purposes hereof.

                                   ARTICLE II

                       CERTAIN OBLIGATIONS OF THE EMPLOYEE
                       -----------------------------------

2.1 NO PARTICIPATION IN OTHER BUSINESSES During the Term (except as otherwise
expressly provided in Section 1.8 hereof) the Employee shall not, without the
consent of the Board or its designee, become actively associated with or engaged
in any business other than that of the Employer or a division or affiliate of
the Employer, and he shall do nothing inconsistent with his duties to the
Employer. If the Employee shall breach his obligations under this Section, he
shall promptly reimburse the Employer for any monies paid by the Employer in
connection with his relocation during the Term or in contemplation of the
signing of this Agreement, including, without limitation, any bonus or
relocation expenses paid for or incurred by the Employer, including, without
limitation, carrying costs for property purchased from or on behalf of the
Employee. Any such reimbursement shall be in addition to any other remedy for
breach of this Agreement that the Employer may be entitled to at law or in
equity.

2.2 TRADE SECRETS AND CONFIDENTIAL INFORMATION. Employee agrees to execute and
deliver to the Company the Confidentiality Agreement attached as EXHIBIT B and
further agrees that he shall not (either during the Term or thereafter) without
the consent of the Employer disclose to anyone outside of the Employer, or use
in other than the Employer's business, trade secrets or confidential information
relating to the Employer's business in any way obtained by him while employed by
the Employer

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2.3 NONCOMPETITION. It is recognized by the Employee and the Employer that
Employee's duties hereunder will entail the receipt of trade secrets and
confidential information, which include not only information concerning the
Employer's current operations, procedures, suppliers and other contacts, but
also its short-range and long-range plans, and that such trade secrets and
confidential information have been developed by the Employer and its affiliates
at substantial cost and constitute valuable and unique property of the Employer.
Accordingly, the Employee acknowledges that the foregoing makes it reasonably
necessary for the protection of the Employer's business interests that the
Employee not compete with the Employer or any of its affiliates during the Term
and during any period in which the Employee is being paid post-termination
compensation (hereinafter the "Noncompete Period"). The Employee shall not,
during his employment by Employer and during the Non Compete Period, have an
investment of $100,000 or more in a Competing Business (as hereinafter defined)
and shall not render any services or assistance to any such Competing Business
in any manner, including, without limitation, as owner, partner, director,
trustee, officer, employee, consultant or in any other capacity. If the Employee
shall breach the covenants contained in this Section 2.3 or in Section 2.2
hereof, the Employer shall have no further obligation to make any payment to the
Employee pursuant to this Agreement and may recover from the Employee all such
damages as it may be entitled to at law or in equity. In addition, the Employee
recognizes that any such breach could cause irreparable injury to the Employer
for which money damages may be inadequate, and therefore consents to Employer's
institution of injunctive relief or other equitable proceedings to protect
Employer's rights.

      (a) As used in this Agreement, the Term "affiliate" shall mean, with
      respect to a particular person, a person that directly, or indirectly
      through one or more intermediaries, controls, or is controlled by, or is
      under common control with, such person, and a person shall be
      "unaffiliated" with another person if such persons are not affiliates with
      respect to one another.

      (b) As used in this Agreement, the term "Competing Business" shall mean
      any business which:

                              (i) at the time of determination, is substantially
                    similar to the whole or in a substantial part of the
                    business conducted by the Employer or any of its divisions
                    or affiliates;

                              (ii) at the time of determination, is operating a
                    store or stores which, during its or their fiscal year
                    preceding the determination, had aggregate net sales,
                    including sales in leased and licensed departments, in
                    excess of $10,000,000, if such store or any of such stores
                    is or are located in a city or within a radius of 25 miles
                    from the outer limits of a city where the Employer, or any
                    of its division's or affiliates, is operating a store or
                    stores which, during its or their fiscal year preceding the
                    determination,


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                    had aggregate net sales, including sales in leased and
                    licensed department, in excess of $10,000,000; and

                              (iii) had aggregate net sales at all its
                    locations, including sales in leased and licensed
                    departments and sales by its divisions and affiliates,
                    during its fiscal year preceding that in which the Employee
                    made such an investment therein, or first rendered personal
                    services thereto, in excess of $25,000,000.

2.4 CONFLICTS OF INTEREST. The Employee shall not engage in any activity that
would violate the Employer's Conflict of Interest, Business Ethics Statement or
Code of Conduct applicable to employees of the Employer.


                                   ARTICLE III

                                CHANGE IN CONTROL

3.1 EFFECT OF CHANGE IN CONTROL. If a Change in Control (as hereinafter defined)
shall occur on or prior to the expiration date of the Term or during any period
in which the Employer was an affiliate of Filene's Basement Corp. (the
"Company"), the Term shall be automatically extended to a date which is three
years from the date on which such Change in Control is consummated, unless the
Employer has given notice to the Employee pursuant to Section 1.7 hereof prior
to such Change in Control. As used in this Agreement, "Change in Control" shall
have the meaning set forth in EXHIBIT C.

3.2 PARACHUTE LIMITATION. Notwithstanding any other provision of this Agreement,
if the aggregate present value of the "parachute payments" to the Employee,
determined under Section 280G(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), is at least three times the "base amount" determined under
such Section 280G, then the Base Compensation otherwise payable under this
Agreement and any other amounts payable hereunder or any other severance plan,
program, policy or obligation of the Employer or any other affiliate thereof
shall be reduced so that the aggregate present value of the parachute payments
to the Employee, determined under such Section 280G, does not exceed 2.99 times
the base amount. In no event, however, shall any benefit provided hereunder be
reduced to the extent such benefit is specifically excluded by Section 280G(b)
of the Code as a "parachute payment" or as an "excess parachute payment." Any
decisions regarding the requirement or implementation of such reductions shall
be made by such tax counsel as may be selected by the Employer at its cost as
acceptable to the Employee.

                                   ARTICLE IV

                                  MISCELLANEOUS



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4.1 ASSIGNMENT. This Agreement may be assigned by the Employer to any of its
affiliates. This Agreement shall not otherwise be assignable by the Employer
without the consent of the Employee, except that if the Employer shall merge or
consolidate with, or transfer all or any substantial portion of its assets,
including goodwill, to another corporation or other form of business
organization, this Agreement shall (or, in the case of any such transfer, may)
be assigned to and shall bind and run to the benefit of the successor of the
Employer resulting from such merger, consolidation or transfer. The Employee may
not assign, pledge or encumber his interests in this Agreement or any part
hereof.

4.2 GOVERNING LAW. This Agreement has been executed on behalf of the Employer by
an officer of the Employer located in the Commonwealth of Massachusetts. This
Agreement and all questions arising in connection herewith shall be governed by
the internal substantive laws of the Commonwealth of Massachusetts. The Employer
and the Employee each consent to the jurisdiction of, and agree that any
controversy between them arising out of this Agreement shall be brought in, the
United States District Court for the District of Massachusetts, or such other
court venued within Massachusetts as may have subject matter jurisdiction over
the controversy. If both parties agree any dispute may be submitted to
arbitration under rules established by The American Arbitration Association.

4.3 SEVERABILITY. If any portion of this Agreement is held to be invalid or
unenforceable, such holding shall not affect or invalidate any other portion of
this Agreement.

4.4 ENTIRE AGREEMENT. This Agreement (together with the Exhibits hereto)
comprises the entire agreement between the parties hereto and, as of the date
hereof, supersedes, cancels and annuls any and all prior agreements between the
parties hereto. This Agreement may not be modified, renewed or extended orally,
but only by a written instrument referring to this Agreement and executed by the
parties hereto.

4.5 GENDER AND NUMBER. Words in the masculine herein may be interpreted as
feminine or neuter, and words in the singular as plural, and vice versa, where
the sense requires.

4.6 NOTICES. Any notice or consent required or permitted to be given under this
Agreement shall be in writing and shall be effective when given by personal
delivery or five business days after being sent by certified U.S. mail, return
receipt requested, to the Secretary of Filene's Basement, Inc. at its principal
place of business in Wellesley, Massachusetts or to the Employee at his last
known address as shown on the records of the Employer.




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4.7  WITHHOLDING TAXES.  the Employer may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation
or ruling.


IN WITNESS WHEREOF, the parties hereto have hereunto and to a duplicate hereof
set their signatures as of the day and year first above written.

                                      FILENE'S BASEMENT, INC.

                                      By:  /s/ Mone Anathan, III
                                           -------------------------------------
                                           President
                                           -------------------------------------
                                                           Title




                                      EMPLOYEE

                                           /s/William J. Carothers
                                           -------------------------------------
                                           William J. Carothers









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                                    EXHIBIT A
                                    ---------


-    BASE SALARY: $560,000

-    CASH ANNUAL BONUS: Up to 75% of Base Salary in accordance with the
Employer's bonus program and based on performance against quantifiable and
non-quantifiable goals as agreed upon by the parties in writing prior to each
performance period.

-    LIFE INSURANCE: Same coverage as provided for the Employer's CEO to be
provided by and paid for by Employer.

-    EQUITY: 300,000 stock options with four year vesting.

-    RELOCATION: The Employer shall pay the Employee a one-time, lump-sum
relocation amount of $100,000 and shall also pay for all reasonable and
customary moving and relocation expenses in accordance with Employer's moving
policy set forth in EXHIBIT A-1. The Employer recognizes that it may take
considerable time to sell Employee's current residence and purchase future
residence and shall provide Employee with either temporary housing or a
temporary housing allowance agreed upon by both parties. Further, Employer
understands that a bridge loan may be needed to facilitate the purchase of a new
residence and shall provide such loan or make reasonable accommodations with
local lenders to provide such loan in an amount not to exceed $500,000.

-    BENEFITS/PERKS: Employer shall provide health, welfare and retirement
benefits during the Term. The health benefits are to be substantially similar to
Employee's current coverage (21/75 Club, Metrolife number 33575 and Empire State
Blue Cross/Blue Shield major medical policy #33575) as set forth in EXHIBIT A-2.
The Employer shall also provide short and long term disability plans providing
benefits and compensation commensurate with Employee's position and compensation
level.

-    COUNTRY CLUB: It is understood and incumbent upon the Employer to provide
Employee with the financial means necessary to allow Employee to join and become
an active full member of a local country club of his choice. Expenses covered
include initiation, membership, capital charges and all other fees assessments,
deposits, etc., up to a maximum of $25,000.

-    VACATION: Notwithstanding any Employer policy or precedent, the Employee
shall be entitled to four weeks vacation each year of the contract.


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-    RELOCATION: Without Employee's consent, Employee shall not be relocated
outside a twenty-five mile radius of the workplace to which Employee was
assigned.

-    SEVERANCE POLICY GUIDELINES:

If Employee's employment is terminated by the Employer pursuant to Section 1.7:

                           Employer-paid COBRA:     12 months

               For a period of 12 months, the Employer shall continue to pay the
               premium for the agreed upon Life Insurance amount as well as any
               supplemental short term and long term disability insurance.


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                                    EXHIBIT B


                          Initial Compliance Statement
                          ----------------------------

                           Conflict of Interest Policy
                           ---------------------------
                  Policy Against Trading on Inside Information
                  --------------------------------------------
                             Software Code of Ethics
                             -----------------------

Annual Compliance Statement to be submitted to the Vice President of Human
Resources of the Corporation each year by the employee as defined by such
Policy(s).

To:   Executive Vice President Administration and General Counsel

I hereby certify that I have reviewed the Filene's Basement, Inc. Policy
regarding Conflict of Interests, and Policy Against Inside Trading, that I am
personally in compliance therewith and that I have no knowledge that any other
employee of the Corporation is not in
compliance therewith.

In addition, I have read Filene's Basement, Inc.'s Software Code of Ethics. I am
fully aware of the Corporation's software policies and agree to abide by those
policies.

Name: W. Jay Carothers                       /s/ William J. Carothers
      ----------------------                 -------------------------------
Please Print                                          Signature  

Location: 29 - Corporate Office                     6/23/97
          ----------------------            -------------------------------
                                                       Date

         


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                                    EXHIBIT C
                                    ---------

                         Definition of Change in Control
                         -------------------------------


     "Company," as used herein, shall mean Filene's Basement Corp. (or any
successor), which is the parent of the Employer.

     "Change in Control" shall mean the occurrence of any one of the following
events:

          (a) any 'person' as such term is used in Sections 13(d) and 14(d) of
     the Securities Exchange Act of 1934 (the "1934 Act") (other than (i) the
     Company, (ii) any subsidiary of the Company, (iii) any trustee or other
     fiduciary holding securities under an employee benefit plan of the Company
     or of any subsidiary of the Company, or (iv) any company owned, directly or
     indirectly, by the stockholders of the Company in substantially the same
     proportions as their ownership of stock of the Company), becomes the
     'beneficial owner' (as defined in Section 13(d) of the 1934 Act), together
     with all Affiliates and Associates (as such terms are used in Rule 12b-2 of
     the General Rules and Regulations under the 1934 Act) of such person,
     directly or indirectly, of securities of the Company representing 35% or
     more of the combined voting power of the Company's then outstanding
     securities;

          (b) the stockholders of the Company approve a merger or consolidation
     of the Company with any other company, other than (1) a merger or
     consolidation which would result in the voting securities of the Company
     outstanding immediately prior thereto continuing to represent (either by
     remaining outstanding or by being converted into voting securities of the
     surviving entity), in combination with the ownership of any trustee or
     other fiduciary holding securities under an employee benefit plan of the
     Company or any subsidiary of the Company, at least 65% of the combined
     voting securities of the Company or such surviving entity outstanding
     immediately after such merger or consolidation or (2) a merger or
     consolidation effected to implement a recapitalization of the Company (or
     similar transaction) in which no 'person' (with the exception given and the
     method of determining 'beneficial ownership' used in clause (a) of this
     definition) acquires more than 50% of the combined voting power of the
     Company's then outstanding securities;

          (c) during any period of two consecutive years (not including any
     period prior to the execution of this Agreement), individuals who at the
     beginning of such period constitute the Board, and any new director (other
     than a director designated by a person who has entered into an agreement
     with the Company to effect a transaction described in clause (a), (b) or
     (d) of this definition) whose election by the Company's stockholders was
     approved by a 

<PAGE>   13

     vote of at least two-thirds (2/3) of the directors then still in office who
     either were directors at the beginning of the period or whose election or
     nomination for election was previously so approved cease for any reason to
     constitute at least a majority thereof; or

          (d) the stockholders of the Company approve a plan of complete
     liquidation of the Company or an agreement for the sale or disposition by
     the Company of all or substantially all of the Company's assets.

     For purposes of this Exhibit C, the term "Board" means the Board of
Directors of the Company and the term "Stock" means the common stock of the
Company.