Emerging from bankruptcy could be a tough task for Bon-Ton
Department store owner Bon-Ton Stores Inc. has plans aimed at turning around its fortunes and emerging from bankruptcy, but restoring financial health to the company will be a tough task — maybe even an impossible one — industry analysts say.
Bon-Ton, which is the parent company of Boston Store, Younkers and other retail chains, filed for Chapter 11 bankruptcy in Delaware on Sunday. The company said it plans to restructure but will consider selling the company.
Bon-Ton has not been profitable since 2010 and recently missed a $14 million interest payment on its debt. The company has debt of about $1.1 billion. It already has said it is closing 47 stores this year.
Stores operated by Bon-Ton, many of them located in shopping malls, will remain open while the turn-around plan and discussions on restructuring are underway. Bon-Ton said it is talking with potential investors and debt holders about a financial restructuring plan.
But no matter what happens, trends are working against department stores such as Bon-Ton, analysts say.
Although growing online competition is the most-often cited trend, a longer-term pattern going back 40 years has been the rise of “category killer” big box competitors that specialize in merchandise that once was found primarily in department stores, retail consultant Nick Egelanian, founder of SiteWorks Retail Real Estate Services in Annapolis, Md., said Monday.
For example, retailers such as T.J. Maxx, HomeGoods and Ulta keep opening stores that compete against the three most important departments left in department stores: apparel, housewares and cosmetics.
“Discounters are going to grow until they put them out of business,” Egelanian said.
In a note issued after Bon-Ton filed for bankruptcy, industry analyst Neil Saunders of GlobalData Retail said the internet and online retailers have reduced an advantage Bon-Ton once had — locating its stores in smaller metro areas where the availability of branded fashions and housewares was traditionally poor.
While Bon-Ton has tried to improve its assortment of merchandise and built up its e-commerce sales, “the meager sales they delivered were wholly insufficient to turn around Bon-Ton,” Saunders said.
“The harsh reality is that while BonTon’s management put in great effort to make the business sustainable, they were always running up a down escalator,” Saunders said.
With consultant AlixPartners, BonTon recently put together a plan to try turn the company around. The plan focuses on closing underperforming stores, providing more sought-after merchandise, improving its marketing and increasing online-related sales by 50% in the next two years.
Egelanian noted that one of the things Bon-Ton wants to pursue is adding more private label merchandise.
“Well, it’s a little late for that when you’re structurally and strategically in a weakened position like they are. I wouldn’t expect that’s going to have much impact,” he said.
Retail consultant Anne Brouwer, senior partner at McMillanDoolittle in Chicago, said shortly before the bankruptcy filing that Bon-Ton faces a difficult road.
“They have a pretty long, deep and sustained hole that they’ve managed to dig through really years and years of not making the tough decisions and bigenough changes,” she said.
Bon-Ton is looking for an investor, or sponsor, to invest $45 million in the company as part of its restructuring plan, in which debt would be converted to equity for debt holders. If that doesn’t happen, Bon-Ton is asking in bankruptcy court to allow it to take bids to sell all of the company’s assets before the end of this spring.
“Basically, they are on a dual track,” said corporate bankruptcy expert Peter Blain, who looked at the Bon-Ton bankruptcy documents Monday.
Blain, who leads the reorganization practice of the Milwaukee firm Reinhart Boerner Van Deuren, said the schedule sought by Bon-Ton to sell its assets would be “pretty aggressive,” with the company asking for bids to be taken by early April.
Bon-Ton said it has received a commitment from a group of lenders for up to $725 million in special financing, known as debtor-in-possession financing, which would be expected to support the company’s operations during the financial restructuring process.
In addition to Boston Store and Younkers, Bon-Ton, which has dual headquarters in Milwaukee and York, Pa., operates department stores under the brand names Bergner’s, Bon-Ton, Carson’s, Elder-Beerman and Herberger’s. In all, it has 256 stores in 24 states.
Bon-Ton’s Milwaukee headquarters, which has about 600 employees, operates from space in the Grand Avenue Boston Store building.
Bon-Ton has an agreement with the City of Milwaukee tied to ongoing renovations at the headquarters. The redevelopment of the building will create 100,000 square feet of offices for additional businesses, along with a smaller Boston Store and a renovated Bon-Ton headquarters.
Asked how Bon-Ton’s bankruptcy might affect Milwaukee’s redevelopment agreement, city spokesman Jeff Fleming said meetings were taking place on the matter Monday.
“We are focused on keeping jobs here, protecting city taxpayers and supporting a valued local business,” Fleming said.
The stock price of Bon-Ton shares closed at 9 cents Monday, down from 15 cents on Friday.