Bon-ton Stores, Inc. – Demise or New Lease on Life After Chapter 11 Bankruptcy Filing?

Earlier this week, The Bon-Ton Stores, Inc. took its multi-chain brand of department stores into Chapter 11 bankruptcy. The action makes the regional chain of department stores the largest retailer to seek such protection this year. CNBC reported, in the immediate aftermath of the Chapter 11 filing,that the chain “…has been burdened with massive debt as it has struggled to grow sales and move operations online in the face of Amazon”.

In 2017, approximately twenty major retail chains, including The Limited, Radio Shack, Hhgregg, Gordman’s, Gymboree, Payless ShoeSource, andthe toy-retailing giant Toys R’ Us, to name just a few of the more recognizable brands, filed for bankruptcy protection. In the year prior (2016), several other highly recognizable, traditional “brick and mortar” retailers filed for bankruptcy – those included, amongst others,Aeropostale, Sports Authority, American Apparel, and Pacific Sunwear.

Market analysts point to changing consumer taste preferences, changes in shopping behavior and a growing turn to online shopping instead of more traditional methods, as a probable reason for the recent upsurge in retail bankruptcies. According to one recent report on CNBC, “Changes in shopping behavior and the need for speed offer some of the reasons why the landscape (in the retailing sector) has evolved so rapidly. At many malls across America, foot traffic is on the decline as online shopping surges. Internet behemoth Amazon’s encroaching presence is on the minds of many, forcing retailers to either beef up their own digital operations, or risk falling behind…”.

Given the number of retailers – some of whom are iconic (think Toys R’ Us) while others may be leaders in their respective sectors (such as Radio Shack and Sports Authority) – seeking bankruptcy protection in the past few years, it might be productive and instructive to take a fairly “deep dive” into the history and background of the most recent Chapter 11 filer – The Bon-Ton Stores, Inc. – to see if, perhaps, “the handwriting is on the wall”, so to speak, for other retail chains who have not yet come to the point of seeking bankruptcy protection.

As with newspapers, in the last several years, blaming craigslist and its founder Craig Newmark for their woes and failures, one is left to wonder if the bankruptcies, failures, and restructurings plaguing the retail industry can be laid at the doorstep of Amazon and its founder Jeff Bezos?

One might ask, could the pattern of growth and expansion of Grumbacher and Sons, over the years, through acquisitions, purchases, and so on into The Bon-Ton, Inc. period, hold a clue as to why this particular company is now engaged in bankruptcy and a fight for its corporate “life”? Is there something internal – stupid mistakes, critical errors, mismanagement, etc. – that brings The Bon-Ton to this juncture in its corporate existence? Or, are significant changes that started, roughly, in the last quarter of the twentieth century- changes in markets and marketing, in methods and methodology, in how retail is “done” in the twenty-first century –now taking a toll on such businesses and enterprises?

Bon-Ton Stores files Chapter 11 bankruptcy

Boston Store, Milwaukee, WI

The history of The Bon-Ton Stores dates back to the year 1898, when its founder, Samuel Grumbacher, with his son Max, opened a small dry goods and mercantile store in York, PA. The business – really just a one-room storefront on York’s Market Street – was named Grumbacher and Sons. The business philosophy of Grumbacher and Sons’ founder can be found in the early archives of the company – according to those materials, Samuel Grumbacher operated the business “…with a close attention to detail and a conviction that business success would come to those who offered customers quality merchandise at a fair price with careful attention to their individual needs and wants.”

“Quality merchandise”, at a “fair price” while paying “careful attention to (customers’) individual needs and wants”; surely a philosophy for success in 1898; surely a practical stance throughout the twentieth century and beyond. Perhaps some of the successors to Samuel and Max Grumbacher forgot the founder’s philosophy, or… perhaps the press of business – growth, new acquisitions, dealing with changes in merchandising, marketing, and running the business day-to-day – got in the way of adhering tenaciously to the company’s core philosophy; or… maybe industries change, naturally, over time and the ways of yesterday do not quite fit the needs to today? Between 1898 and 2018 – a period of one-hundred twenty years – something changed for The Bon-Ton Stores: the upward, growth-oriented, acquisition-centric trends leveled off and reversed; share-of-market concerns became “burdens” of “massive debt”; and, the fight for a fair profit and adequate return on investment became a “struggle to grow sales”, period.

The growth of Grumbacher and Sons started off slowly; for nearly fifty years, the “flagship store” in York, PA was the only one operating. In 1929, twenty-one years after opening its doors for business, the company incorporated as S. Grumbacher & Son, Inc. (from “Sons” to “Son, Inc.” in one smooth move!). In 1946, forty-eight years after starting their first store, the Grumbachers added a second store in nearby Hanover, PA (almost 20 miles distant, as the crow flies!) – such movement was NOT the epitome of the “race to the top”, by any means, but it could be validation that the Grumbachers were not then, nor later, business people who took risks or played “fast and loose” with their company, or with their livelihood and means of making a living.

In the years that followed, the family continued their cautious approach to growth and expansion. The year 948, saw the company taking their first steps outside the Keystone State when they bought Eyerly’s Department store which was across the state line in Hagerstown, MD. Then, some nine years after purchasing the Eyerly’s location in Maryland, Grumbacher & Son, Inc. further expanded operations by acquiring McMeen’s Department store in Lewistown, PA. The old adage, “slow and steady wins the race” could be one that the Grumbacher family learned early on in their history – it took them fifty-nine years to go from one department store to a total of four, three in close proximity to each other in Pennsylvania and the fourth just a short distance away in the neighboring state of Maryland.

As one commentator has noted while discussing The Bon-Ton’s growth and expansion history, the pace and deliberateness of the expansion moves of The Bon-Ton Stores – early on when the company was still being operated as S. Grumbacher & Son, Inc. – didn’t seem to be fast-paced by any means. “These early moves”, it was said,“set Bon-Ton’s policy of growing into adjacent areas by opening new stores and acquiring existing businesses.”

By 1961, as the fourth generation began to enter the business, the company was further expanding by opening new Eyerly’s and Bon-Ton stores in a tight-circle of Pennsylvania communities not too far distant from the original York location. At the same time, expansion outside of Pennsylvania continued with the opening of a Bon-Ton’s in West Virginia. Sometime in the mid-1960’s, the chain took off in a new direction when they started the discount chain of stores that they named Mailman’s. And, at the end of that decade, when the Bon-Ton chain was poised for more sustained and wide-spread growth, the family decided to retire the McMeen’s brand name that they’d had since 1957. While the decade of the ‘60’s was tumultuous for the nation as a whole – Viet Nam was raging, hippies were ascendant, and a whole generation seemed to be in a constant state of protest and upheaval – the Grumbacher family seemed to all but ignore all of that in favor of strategic planning and growth for the following years.

During the 1970’s, the popularity of shopping centers and malls grew rapidly – it was almost a cultural shift away from “downtown shopping” districts and main streets to shopping centers and malls, many of which were near the outskirts of towns and cities and away from the former core areas. Between 1971 and 1979, Bon-Ton opened eleven new stores in Pennsylvania and West Virginia, and planned for more growth through acquisitions, new stores, and even the addition of a new division which it named Maxwell’s. In the early 1980’s, the company acquired Fowler’s Department Store in New York, and by 1985, when fourth generation great grandson M. Thomas (“Tim”) Grumbacher ascended to the CEO position, Bon-Ton Stores operated a total of eighteen stores in four states (Pennsylvania, Maryland, West Virginia, and New York).

By 1987, it appears that the company had laid the groundwork to make a major move when it bought the venerable Pomeroy’s department store chain (first established in Easton, PA, in 1860) from Allied Department Stores; by adding the eleven stores at the core of the Pomeroy’s brand, Bon-Ton was able to move into seven new marketing areas within Pennsylvania, while changing its longtime focus on discount merchandise and merchandising. In a major shift in strategy, Bon-Ton brands moved into the moderate-priced markets in order to appeal to a broader cross section of the buying public. At that time, it’s discount brand, Mailman’s, was discontinued and the stores associated with discounting were closed for good. Continuing with its major shift in strategy, low-margin product lines such as electronics, appliances, and the like were dropped from the Pomeroy’s products list. Going further, the names of it’s Eyerly’s and Maxwell’s brands were changed to Pomeroy’s or Bon-Ton (depending on where a particular store was sited), and a strong emphasis on branded and brand name high-end merchandise was begun (non-discount, high-recognition worldwide brands featured at Bon-Ton’s and Pomeroy’s stores included Levi Strauss, Esprit, Liz Claiborne, Estee Lauder, and Alfred Dunner to name just a few).

If the decades of the ‘60’s, ‘70’s, and ‘80’s were ones of slow, steady and paced growth for the chain, the decade of the ‘90’s proved to be one of major changes that began in 1990 with a change of corporate logo and the finalization of a long-term plan to integrate the Pomeroy division fully within the Bon-Ton brand; as that change took effect and as Pomeroy’s focus and identity achieved a higher level of quality to match that of Bon-Ton, the name “Pomeroy’s” was dropped in favor of having all stores carry the Bon-Ton name. All stores across the chain became known for carrying and selling apparel for the entire family, as well as a wide array of cosmetics and fashion accessories; twenty-eight stores carried such items as home furnishings(china, linens, housewares, and gift items); and, four of the larger stores sold bedding and furniture, a substantial departure from earlier times.

The Bon-Ton Stores, Inc. was an innovator in one area during that period of growth – leased space for specialty stores or departments within the core store. All Bon-Ton stores at that time had leased shoe departments, and a great many had leased jewelry departments, while a lesser number contained leased beauty parlors. Business for Bon-Ton stores was running apace with the department store/retail industry as a whole – as a measure of growth, net sales for Bon-Ton in 1990 were 6.4 percent higher than they were in 1989. In 1991, the original corporate entity, S. Grumbacher & Son, Inc., changed its name to The Bon-Ton Stores, Inc., and went public on the NASDAQ market with an IPO that sold four and one-half million shares. The size of the company at that juncture was thirty-three stores – the size was destined to grow during the remaining years of the decade, and the following acquisitions were made:

• 1991 – J.W. Rhodes, Ithaca, NY purchased
• 1992 – Two (2) Watt & Shand locations purchased (downtown Lancaster, PA & Park City Center)
• 1993 – Bon-Ton store opened in Wilton Mall, Saratoga Springs, NY
• 1994 – Adam, Meldrum & Anderson chain, Buffalo, NY purchased (10 locations)
• 1994 – Hess Department Stores in Pennsylvania, purchased (19 stores)

During 1994, overall Bon-Ton stores closed more stores than it opened or acquired, but it’s growth, despite the then-recent 1992-1993 recession, was positive (Net sales in 1993 were $333.7 million and grew slightly in the following year to $336.7 million).

By the end of 1994, the size of the company stood at seventy stores and expansion into three new markets (Buffalo and Syracuse, NY, and Allentown, PA) was completed. The next year, however, was one of both difficulty and uncertainty for the Bon-Ton family of stores. The 1994 acquisitions of the AM&A stores in Buffalo, and the Hess stores in Pennsylvania put the company to the test of having to integrate them into the Bon-Ton operations while trying to withstand the battering the industry took as a whole from the recession in the early years of the Clinton administration. Despite fairly substantial net losses in the first two quarters of 1995, a Dillon, Read, & Company analyst, Peter Schaeffer, wrote in October, 1995: “Bon-Ton is a substantial company. This year’s weak earnings do not connote a disaster in the making. The potential for the chain is great; I am looking for a rebound next year.”

Integrating the Buffalo AM&A stores proved to be more difficult than expected – the problem centered on underperforming stores for that division (the same held true, to a lesser degree, for the Chappell’s stores); the remedy was to be found in bringing the Buffalo stores into line with Bon-Ton’s more moderately-priced lines of apparel, and eliminating entirely the budget-level business in AM&A’s operations. The Hess stores proved to me more resilient and its merchandise mix, quality, and focus was in far greater alignment with Bon-Ton’s than were those of AM&A and Chappell’s. In a sense (from the perspective of looking back at this juncture), the Hess acquisitions could be considered a “home run”; the Chappell’s move a “foul ball”; and, long-term, the AM&A play a “strike out”.

At the beginning of 1996, the foreseen “rebound” that the Dillon, Read, analyst was “looking for” was not on the horizon. At the end of January, 1996, three stores were closed without fanfare. In the same month, Bon-Ton’s leadership laid plans to begin closing even more underperforming stores (rumor had it, at the time, that initially five to seven stores might be included), and other restructuring steps were considered and undertaken.

At this juncture of the ‘90’s decade, the future of the department store industry, as a whole, was much brighter than it had been just a few years earlier. As retail consultant Alan Millstein opined in a Business Week article late in 1995, “The shock and surprise (for 1995) is the viability of department stores. Their bottom lines are a lot healthier than anyone would have forecast.” The rosiness of the picture was enhanced as department stores – going toward the turn of the century – were fully expected to slowly regain market share from discount retailers, outlets stores, and, to a lesser degree, the slowly-emerging online cyber retail industry.

Not so, it seems in retrospect, for The Bon-Ton Stores, Inc. A closer look at their economic metrics from that time shows why. On the one hand, The Bon-Ton Stores, Inc. was in competition, nationally, with the May Department Store chain (severe competition in thirteen of Bon-Ton’s forty-four markets). Additionally, some of it’s financial problems arose because of the chain’s focus on middle class buyers who were stretched economically even when the economy, as a whole, was on the rebound. The situation was dire enough that a respected West Coast investment analyst, Ed Dravo, even went so far as to recommend that Bon-Ton investors should sell their shares. In a September, 1995, issue of Financial World, Dravo wrote: “Not only does Bon-Ton have economics playing against it, it is also in the retailing category that Wal-Mart likes to extinguish. Revenues are flat and earnings have disappeared.”

During this period, the Grumbacher family retained ownership of ninety-four percent of the publicly traded company’s shares; while outside management had largely displaced family members in central leadership positions, Grumbachers still held board positions and exercised some control and authority over major decisions – one such decision and determination was to resist any takeover attempts by other national department store chains.

Moving through to the end of 1996, and on into 1997, the company’s fortunes continued to seesaw. Quarterly losses – though not monumental – continued – and during the third quarter of 1996, the net loss reported was nearly a quarter of a million dollars; rumors were afloat that further store closings could occur in early 1997. But… at the beginning of 1997, the picture changed for the better once again. This time, strategic changes in merchandising, with a renewed focus on higher-end brands (Lauren for Women, CK, and Polo), started to pay off; one major goal was to set The Bon-Ton Stores apart from “lesser” brands such as J.C. Penney and the ever-struggling Sears, Roebuck & Company.

And, so it went for The Bon-Ton Stores, Inc. – a fairly bad year followed by a year or two of increased sales, a sense of stability, and rosy (rosier?) years ahead. Followed, inevitably by a losing year (or two) and predictions of sell-offs, take overs, or liquidation. For 1997, earnings increased to thirty-six percent, welcome news to COO Michael Gleim who said in March, 1998: “We are very pleased with our results for the year, particularly the significant increase in net income.” Analysts and insiders credited those promising results to the aggressive restructuring initiatives in the prior years, and the taking on of new and more profitable lines across the Bon-Ton chain of stores, for such “…significant increase in net income.”

Unsaid at the time were two additional factors – a significant reduction in the number of vendors throughout the chain AND the complete elimination of a costly pension plan that came with the acquisition of one of the department store companies several years earlier – some observers might have said that this was “hedging” on the part of the Bon-Ton year-end reports.

With an eye to the future, the leadership of The Bon-Ton Stores, Inc. announced in May, 1998, a second stock offering nearly identical to that in the IPO of 1991 – four million six hundred thousand additional shares were offered and sold. The money from that public sale was directed toward further expansion, including Bon-Ton’s first move into the New England market area with a new store in Westfield, MA. This move signaled another change in strategy – making a move into smaller, less urban-centric markets, coupled with upgrades in many existing stores and locations, along with establishing Bon-Ton brand stores as “cornerstone” or “anchor” stores in malls (at that time, Malls continued to be attractive shopping “meccas” for retail consumers and had not yet begun the decline of the first decade of the twenty-first century that has led to their near-ultimate demise today).

The year 1999 brought a renewed sense of optimism to The Bon-Ton Stores; the company had a full portfolio of new stores, further expansions, and extensive remodels in many locations. The year passed quickly and as the old century turned to the new, the optimism quickly faded along with the chain’s desired sales figures, most notably sales profits. The United States’ economy took a dive in early 2001, and so did the spending habits of American consumers – Low Cost/High Value became the norm, and lower-end retailers like Wal-Mart and their Sam’s Club progeny made gains in increased sales while the Bon-Ton-level retailers suffered.

Looking back from today’s vantage point, the twenty-first century “history” of The Bon-Ton Stores, Inc. chain of department stores looks much like the second half of the previous century – ups and downs and riding the economy like a roller coaster, dealing with economic turmoil and trying to stay ahead of the changes in the era of a “new economic reality” and the ominous internet (fed by such giants as Amazon in the cyber world and Wal-Mart in the “brick and mortar” world) – in short, the best laid plans of the company’s Board… continued expansion, upgrading of locations, new stores, new markets, new ideas and following others into internet retailing where success seemed assured – all of that was not meant to be so that after years of continued struggle, the leaders finally gave in and filed for Chapter 11 Bankruptcy in February, 2018.

A Bon-Ton spokesperson said last week that “aggressive restructuring plans are in the mix” and that “…the company has received a commitment, from existing lenders, of some $725 million to support continuing operations.”

The Bon-Ton Store

Bon-Ton Store, Mill Creek Mall, Erie, PA (Jan. 31, 2018)

[The Bon-Ton Store at the Mill Creek Mall
near Erie, PA – pictured at left – first opened in September, 1998 as an Elder-Beerman; in 2003, it became a Bon-Ton Store. In late 2017, the chain filed a two-year, four-part “turnaround plan” with the Securities & Exchange Commission. A part of that plan includes the closing and liquidation of upwards of forty-seven stores; included in those closings is The Bon-Ton Store at Mill Creek Mall – an “anchor store” in what once was Erie County’s only Mall…]

The long-term future of The Bon-Ton Stores, Inc. will not be known anytime soon – first, there’s the previously filed SEC two-year turnaround plan, and then there’s the ins and outs of the Chapter 11 filing. In a statement posted on The Bon-Ton Stores, Inc. website as late as yesterday, the company said:

Bon-Ton has been taking action over the past several months to
drive improved performance and strengthen the Company’s financial
position, and has now taken another step forward in its efforts by
filing voluntary petitions for a court-supervised restructuring under
Chapter 11. We are currently engaged in constructive discussions
with potential investors and our debtholders on a financial restructuring
plan, and the actions we are taking are intended to give us additional
time and financial flexibility to evaluate options for our business… We
are committed to pursuing the path that we believe is in the best
interests of our company and our stakeholders, and we will continue to
provide our customers with quality merchandise and an exceptional
shopping service as we move through this financial restructuring

What Samuel laid down as his “philosophy” early on – “…a conviction that business success would come to those who offered customers quality merchandise at a fair price with careful attention to their individual needs and wants.” – is reflected in the company statement as quoted from their website above, that is: “…we will continue to provide our customers with quality merchandise and an exceptional shopping service…”

The history of the company – from it’s inception under Samuel and the first Max Grumbacher, continuing through to today – has always been one of optimism and adogged inclination and determination to grow, expand, and become better with each succeeding year. The history of the company shows that such marked determination has carried the company from its humble beginning as a one-store enterprise, through ups and downs – including surviving the great depression of the 1930’s – over a period spanning one-hundred twenty years, to what may be a final point in its history where “do or die” may not be enough and the final chapter may be entitled quite simply “Demise”.
At the time of the Chapter 11 filing last week, the company continued to operate 260 retail locations in twenty-six states (mostly in the Northeast and Midwest). Previously, the company laid out plans to close forty stores; the turnaround plan lists 42 stores being slated for closure; and, other sources say that the number of actual closures may reach as high as sixty-two or more.

While the company may be “down”, it’s Board and CEO have taken the stance that they are far from “out”. While under bankruptcy protection, Bon-Ton said, “…it will also explore strategic alternatives, including a sale of the company or substantial assets as part of the reorganization plan…”. This could be typical Grumbacher/Bon-Ton optimism at work because the company:

• has been unprofitable for the past 6 years (and struggling to maintain profitability for even longer)
• is carrying about $1.1 billion in debt (which may be shown to be even higher in coming months)
• recently entered into a “forbearance agreement” (*) after missing a deadline on a $14 million debt payment

[(*) in the context of the debt process, forbearance (literal meaning: “holding back”) is a special agreement between the lender and the debtor to delay foreclosure]
Others – including industry analysts and market observers – are expressing doubts about the viability of Bon-Ton Stores surviving at the end of their reorganizing and Chapter 11 efforts.
GlobalData Retail managing director Neil Saunders weighed in two days ago with a rather realistically harsh statement:

“The harsh reality is that while Bon-Ton’s management put in great effort to make
the business sustainable, they were always running up a down escalator.
Even with breathing space, the future of The Bon-Ton is uncertain. In our view,
there are many stores and locations which are in terminal decline and where closure
is the only sensible option… A scaled-down business may have a chance of survival,
but Bon-Ton must resolve the fact that it’s products are undifferentiated, unclear, and
have become increasingly irrelevant to consumers. Even if the debt load was cut and
unprofitable divisions culled, Bon-Ton would still be running up a down escalator.”

Will Bon-Ton survive as The Bon-Ton Stores of old (restructuring and reorganization notwithstanding)?

Or, will Bon-Ton be taken over by a healthier, more viable, and less-debt-burdened chain (J.C. Penney, Kohl’s, or even Macy’s)?

Or, will the venerable 120-year-old regional chain go the way of other retailers of note (think: Borders, Mervyn’s, and KB Toys to name just three) and sink into liquidation, first, followed by inundation that means oblivion and no recovery, second?

Time will tell… at this juncture, the future no longer looks “rosy” for The Bon-Ton Stores, Inc. as it once (or twice, or three times…) did in the past.

Photo credit: The Bon-Ton Stores, Inc.