Amid challenges, Bon-Ton seeks return to profitability

6th straight annual loss expected

With online competition growing and consumers changing their shopping habits, department store chain Bon-Ton Stores Inc. finds itself in a very tough slog.

Historically important — and still so — as a mainstay anchor in shopping malls across Wisconsin, Bon-Ton, the parent company of Boston Store and Younkers, is expected to report its sixth consecutive year with a financial loss on Tuesday.

The latest annual loss comes as the stock price of Bon-Ton, which has dual headquarters in Milwaukee and York, Pa., hovers just above $1, compared with more than $12 a share at this time five years ago.

At the end of February, BonTon was on Moody’s Investors Service’s list of “Distressed Retail and Apparel Companies,” with the credit rating agency assigning Bon-Ton’s debt a grade that suggests high risk.

Although Bon-Ton has claimed some success recently with ideas that have generated more sales — expanded furniture offerings and new “Close to Home” sections that sell locally made or themed items — six straight years of losses show how difficult the retail climate has become. That has left some wondering what might be next for Bon-Ton.

“To be honest with you, I’m not sure what the answer is because during those six years the prospects for traditional department store retailing has not gotten easier,” said Dick Seesel, principal for the Mequon-based consulting firm Retailing in Focus. “Brick-andmortar retailing generally has not gotten easier. You’re seeing a lot of people, like Macy’s and Penney’s, responding with store closings. But beyond that, they really haven’t figured it out, either.”

Indeed, the shifting winds of retailing and the power of Amazon.com have been felt by many retailers.

The Moody’s report noted that nearly 14% of the retail and apparel companies it grades now are considered “distressed issuers” of debt, the most since 16% during the Great Recession. Among those joining Bon-Ton on Moody’s distressed retailers list were companies such as Sears Holdings Corp., rue21 inc., Nine West Holdings Inc., David’s Bridal Inc. and Payless Inc.

Bon-Ton spokeswoman Christine Hojnacki said the company wouldn’t comment on its business until after Tuesday’s earnings release. Many companies decline to talk with the news media shortly before earnings are reported.

Bon-Ton previously said it expects to report a loss of $2.04 to $2.54 per share for its 2016 fiscal year, noting that unseasonably warm weather in its markets — Bon-Ton’s stores are in colder-weather states — and “prevailing soft mall traffic trends” were a drag on earn-

ings.

Beyond weather and reduced traffic at malls, Bon-Ton has other factors working against it, said retail consultant Howard Davidowitz. The company, which grew over the years through acquisitions, has a lot of debt, he noted. Its department stores are in too few of America’s best shopping malls, and its customers are middle-class Americans, a group hit hard in the economic downturn, he said.

“They’re dealing with a middle-class customer, an aspirational middleclass customer. Now, the middle class has gotten murdered,” said Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm in New York City. “They’re in little communities, and many of them are not prospering. They’re positioned terribly, and they don’t have giant, critical mass.”

Like many retailers, Bon-Ton has been increasing its online sales. It frequently emails customers news of discounts in stores and online.

Bon-Ton, which has about 650 corporate employees — including chief executive Kathryn Bufano — at its Milwaukee offices, operates 263 locations overall, including nine furniture galleries and four clearance centers, in 25 states in the

Northeast, Midwest and upper Great Plains. In addition to Boston Store and Younkers, it runs department stores under the names Bon-Ton, Bergner’s, Carson’s, Elder-Beerman and Herberger’s.

As recently at 2011, it had 275 stores. The company might have to close more stores, said retail consultant Anne Brouwer.

“I would expect they have to be looking at their portfolio, and there have to be some markets where they’re over-stored and need to consolidate,” said Brouwer, a senior partner with McMillanDoolittle in Chicago. “Or the numbers are becoming hard to sustain because the malls they’re in may be losing other anchors and losing traffic to a point where they’re just not feasible to continue.”

Brouwer said she doubts a private equity firm or another company would be interested in buying Bon-Ton. However, she’s also not convinced the company’s prospects can’t be turned around. It would take some work and time, though, she said.

“If they don’t fix the assortment, and if they don’t fix the in-store experience and additional services, it’s going to be a tough row for them,” she said. “The assortments are lackluster, the instore experience is lackluster. It can vary from store to store, but it’s not like you’re being bowled over by strong trend statements and unique offerings, and I think that’s a challenge.”

Retail consultant Lee Peterson suggests a more radical approach for retailers that acknowledges online sales will continue growing, in part because of the sheer convenience and the way millennials shop. Stores with scaledback inventory might act more as showrooms for online shoppers, perhaps drawing customers inside with food and events.

“You had years of great success where you had this same model: you bought goods, you marked them up, you put them out and people came to the stores and bought them and you made money,” said Peterson, of the Dublin, Ohio-based firm W.D. Partners. “All of that is out the window. You need to have people want to come to the stores. That stores really need to become something other than what they are now is a major mindset change.”

In 2006, Bon-Ton had annual sales of $3.4 billion. In 2015, sales had dropped to $2.7 billion. The company has said it expects to report a decrease of 2.5% to 3.5% in comparable store sales for 2016.

But Brouwer sees reason for optimism.

“They still have some very good locations, they still have a good name in most of their markets,” she said. “And they still have a scale that can give them a certain number of advantages.”

She added: “I think we’d all like to see it succeed.”