When Is Bon Ton Reducing Price Again
Max S. Grumbucher, when he served as CEO of Bon-Ton in the 1980s and 1990s, had a rule about operating the department store chain his ancestors founded almost a century earlier: Carry no debt.
"Bon-Ton was very much a family unit business concern," said Richard Mader, who was brought into Bon-Ton during the 1980s to modernize its inventory systems and had worked with both Max and his son Tim, who would take over the visitor from his father. Under Max (who died in 2006) the chain grew slowly, with money raised through its operations, Mader said.
Today, Bon-Ton carries hundreds of millions of dollars in debt, a brunt that only keeps growing and is now threatening to transport the visitor into bankruptcy.
After Max Grumbach turned over the leadership to Tim, the company took on debt to finance expansion, as it bought out several of its fellow regional department stores. Today though, Bon-Ton has to borrow just to finance operations while it struggles to generate cash from its retail business, according to analysts.
The retailer's balance sail issues take recently come to a head. In December, Bon-Ton missed a $14 million involvement payment on a grouping of bonds, sending it into a grace period that since expired. For now, the visitor's lenders have given it more than time as they negotiate a possible bankruptcy or debt restructuring with the company.
Without the aforementioned scale every bit a Macy'due south or a Kohl'south, the retailer'due south struggles have been more pronounced than some of its peers as section stores undergo a major structural upheaval. "They are a kind of microcosm of department stores' challenges," Phil Emma, a retail analyst with Debtwire, told Retail Dive.
"The take chances [for] a store like Bon-Ton is the brands they stock are the same brands everybody else stocks and the brands yous can purchase direct," Emma said. "What's differentiated with them compared to any other retailer selling soft goods?"
A 'family business concern'
For decades, Bon-Ton was a family visitor, both in class and civilisation. As CEO, Tim Grumbacher, for instance, used to review every salaried position at the retailer, Mader said.
The first Bon-Ton store opened in 1898 when Max S. Grumbacher 's grandpa and great granddaddy, Max Grumbacher and Samuel Grumbacher, opened a shop in York, PA, according to the York Daily Herald. Later Tim took over, Bon-Ton acquired a host of other nameplates with the oldest, Carson'south, tracing its lineage to 1854. (Today the company operates some 260 stores nether the banners Bon-Ton, Bergner's, Boston Store, Carson'southward, Elder-Beerman, Herberger'southward and Younkers.)
Bon-Ton is still in large part a family-run business concern. While the visitor went public in 1991, the Grumbacher family unit collectively nonetheless owns more 50% of Bon-Ton's stock. Afterwards Tim retired as board chairman last May , his married woman, Debra Simon, took over every bit chair.
Today the retailer remains relatively small amongst department stores, with some $ii.6 billion in sales. It'south too among the very few regional department stores left after years of consolidation and closures.
"In towns where there was a Sears, a [J.C.] Penney, maybe a Kmart — we were going to exist a notch above that."
Richard Mader
President of Mader International Consulting
"They thought of themselves as the upscale department store in small towns. In towns where there was a Sears, a [J.C.] Penney, maybe a Kmart — we were going to be a notch above that," Mader — who served every bit primary information officer for Bon-Ton and afterwards for Boscov's, and who today works as a consultant — told Retail Swoop. "They ran a really clean business. I of the biggest sins of a shop manager was if in that location were whatsoever boxes or stocking going on in the aisles during business hours."
Acquisitions and various changes in operations management might have taken their toll on the company's family unit business culture and spread the organization thin — and added debt. The visitor has too been fighting a long, losing boxing in a department store sector that has struggled to retain relevance for generations at present.
As early as the 1990s, just months later on the company went public, The New York Times wrote well-nigh Bon-Ton suffering from "aggressive price-cutting to clear excessive inventory" (a near-abiding lamentation in department store conference calls in recent years as well). The newspaper also pointed out that "as a department store, [Bon-Ton] still has higher overhead costs than competing mass merchants and specialty shops."
"As we go along down the decades long process of department store 'deconstruction,' the full-line department shop business organisation model continues to break downwards, and more than and more harm is existence inflicted on the already vastly reduced manufacture."
Nick Egelanian
President, SiteWorks International
If anything has changed, it'due south that section stores are existence outflanked by even more competitors who tin beat them on price, convenience, style and nearly every other expanse important to consumers.
"Bon-Ton is one of the remaining regional department store chains, but i of the weakest among them," retail analyst Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive in an email. "As we keep down the decades long process of department shop 'deconstruction,' the full-line section store business concern model continues to break down, and more and more damage is beingness inflicted on the already vastly reduced industry."
And y'all can come across Bon-Ton'southward competitive struggles in its numbers. Its same-store sales take been negative for 13 out of the by 16 quarters, according to data compiled by Retail Metrics. Declines in same-store sales have been larger than negative four% since third quarter 2016. Bon-Ton profits have also been negative in all merely three quarters since 2014.
"They take been bleeding red ink for the past 4 years," through Q3, Ken Perkins, president of Retail Metrics, told Retail Dive in an electronic mail.
Bankruptcy chatter
Bon-Ton entered 2017 nether fiscal pressure, only many analysts thought the visitor had the liquidity to muddle through the year and into its next debt maturities.
But every bit the bad news nearly the company flowed, the bankruptcy churr grew louder.
In one ominous sign, Bon-Ton suppliers reportedly began pressing for tighter terms on shipments to the retailer last fall. Such supplier troubles echo the lead-up to Toys R United states of america' Chapter 11 filing , as well every bit that of many retail bankruptcies, including Gymboree , Charming Charlie and others.
S&P has listed the company as one of the retailers most at chance of bankruptcy . In a Nov. 17 written report, analysts with Fitch Ratings, after leaving Bon-Ton off an expanded "loans of business concern" list in October wrote, "While the visitor has enough liquidity to support 2017 vacation working capital needs, there is hazard of a debt restructuring over the next 12 months."
In September, the retailer hired AlixPartners for assist with its turnaround efforts and began a search for a financial adviser to assist with a possible debt restructuring.
"In December, Bon-Ton failed to make a multimillion dollar involvement payment, entering into a grace period that it has since passed."
T he calendar month of May saw an executive shakeup in which Bon-Ton appear that COO William Tracy would replace previous CEO Kathryn Bufano. Then Bon-Ton's chief financial officer recently left for Pier 1. (The CFO slot has been filled past Michael Culhane, who has served in executive roles at several retailers, including as CFO of Hudson's Bay Co., as well equally positions at Lord & Taylor and May Section Shop Group.)
Afterward three months on the task, Tracy acknowledged in Nov the "retail headwinds" his visitor faced and told analysts, "While our third quarter results roughshod short of our expectations, I want to assure you lot that nosotros're approaching the challenges to the business with [a] sense of urgency and decisiveness," according to a Seeking Alpha transcript of the company'due south Q3 conference call. He confirmed then that the company had hired on advisers for financial and operations assistance.
In December, Bon-Ton failed to make a multimillion dollar interest payment, inbound into a grace period that information technology has since passed. Debtwire reported in December that bondholders had hired advisers, implying that they were discussing possible debt restructuring or company reorganization with Bon-Ton.
Then in January, both Bloomberg and the Wall Street Journal reported that a bankruptcy filing was possible, even "imminent." Citing unnamed sources, Bloomberg reported that the retailer "hasn't fabricated a decision and is still trying to avoid a court filing" and that "information technology's not clear whether [Bon-Ton] would seek to liquidate or to reorganize." One option would exist to combine some parts of Bon-Ton with another business, a movement that would entail a defalcation at some point, co-ordinate to the news service.
'What has to happen at present'
Afterwards its grace period on the interest payment expired in mid-January, the but thing that kept Bon-Ton out of default was an understanding with a group of creditors who opted not to exercise their legal rights, for the time beingness.
That agreement lasts until January. 26 and can be extended until Feb. 4 with the consent of bondholders. In announcing the agreement, Bon-Ton said in a release that it was " engaged in ongoing discussions with its debt holders in an effort to strengthen its capital construction to support the business."
Moody's on Jan. xviii downgraded Bon-Ton, giving information technology a "express default" designation over the missed payment and expired grace period. Analysts with Moody's wrote that the retailer's uppercase construction was "unsustainable at electric current weak levels of operating functioning" and that the company "may have difficulty refinancing its debt without restructuring or harm to lenders."
Given the missed interest payment and its years-long financial duress, Bon-Ton needed a stellar holiday operation. Unfortunately the visitor came upwards brusque. Bon-Ton said in January its comparable store sales fell by 2.9% during the holiday period. Full sales dropped to $752.i meg, down more than 4% from the year-agone menstruum.
"With retailers, there'due south e'er some degree of seasonality, where they rely on the quaternary quarter. When you look at Bon-Ton, they but generate greenbacks menstruation in the fourth quarter."
Phil Emma
Retail Analyst with Debtwire
At the same fourth dimension, other section store retailers — including Kohl's , J.C. Penney and Macy's — reported much-needed sales increases for November and December. Tracy offered no explanation for the declines but noted in a argument that they were an comeback over the 6.6% drop in comps in the third quarter.
Bon-Ton'due south disappointing fourth quarter illustrated many of the company's long-running issues. "With retailers, in that location'south always some degree of seasonality, where they rely on the 4th quarter," Debtwire's Emma said. "When yous look at Bon-Ton, they only generate cash flow in the fourth quarter." In the other nine months of the year, as Emma noted, the visitor has plenty of other cash needs: interest payments, majuscule expenditures, operation costs and then on.
"They use the fourth quarter just to wipe the slate clean for the past ix months. If it'southward non as stiff as needed, they're pulling the problem into the next year," Emma added, referring to the borrowing Bon-Ton must practice to keep the lights on throughout the year.
Tracy said in Nov that his visitor was trying to fix its problems, namely through "refining our four areas of focus, which include differentiating ourselves through merchandise assortment enhancements, driving growth in omnichannel, refining our marketing strategy to increase traffic and client date, and reducing costs through the continued rollout of our profit improvement initiatives."
"What has to happen now, you have to evaluate whether this is the instance of a bad business or just a bad rest canvas."
Phil Emma
Retail Analyst with Debtwire
If Bon-Ton were to file for Chapter 11, it would at least take the opportunity to set itself right, re-aligning costs with a macerated sales base of operations. Information technology could jettison debt and close unprofitable stores. (Bon-Ton already has plans to close 40 stores this year , merely as Emma noted, that pace could accelerate in bankruptcy.)
And of form, Bon-Ton might non file for defalcation at all, if the company is able to convince debtors to hold to a debt restructuring plan, which could include a debt-for-equity exchange, extension of maturities and/or reduction in interest payments. J. Crew, amidst others, has bought itself time through restructuring maneuvers, though the apparel retailer is withal at hazard of going bankrupt.
"What has to happen now, you have to evaluate whether this is the example of a bad business or just a bad remainder sail," Emma said. "If it's just a bad residual sheet, there are a lot of options to address it."
Withal there's another, even more than existential question hanging over Bon-Ton as well, and i that its creditors might well be request the visitor in talks going on now.
Noted Emma, "What is so unique about Bon-Ton compared to other regional section stores that take gone away?"
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Source: https://www.retaildive.com/news/how-bon-ton-came-to-the-brink-of-bankruptcy/515156/
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