Jon Harris/The Morning Call - Ailing department store chain The Bon-Ton Stores Inc. appears to be headed for a restructuring — sooner rather than later.
In a filing Monday with the U.S. Securities and Exchange Commission, Bon-Ton said it is engaged in discussions with debtholders regarding potential restructuring alternatives.
While the company, co-headquartered in York and Milwaukee, noted there are no assurances it will reach an agreement, Bon-Ton disclosed in the filing a plan to turn around its business and boost its total revenue by about 5 percent to almost $2.7 billion by 2020.
The filing comes about two weeks after Bon-Ton announced it entered into forbearance agreements with its lenders after missing a $14 million interest payment in December. Those agreements, however, expired Friday and bankruptcy speculation has been swirling.
“At the same time, we are also focused on executing the merchandising, marketing, cost reduction and store rationalization initiatives that are part of the comprehensive turnaround plan for the business we outlined in November. We are committed to pursuing the path that we believe is in the best interests of the company and its stakeholders.”
The company’s turnaround plan, which covers 2018 through 2020, says a “clear opportunity exists to enhance Bon-Ton’s performance and regain ground lost due to recent challenges.”
The plan’s initiatives were developed from four major business areas: a review of the existing store portfolio; key retailing strategies in merchandising, planning and allocation; necessary changes in marketing; and capital investment strategies within stores.
Retail analysts repeatedly told The Morning Call the most likely outcome for Bon-Ton is bankruptcy. A term sheet included with the filing Monday indicates a restructuring could occur through an out-of-court transaction or through a Chapter 11 filing as soon as Sunday.
“To me, those are just Band-Aids,” retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said after hearing of Bon-Ton’s turnaround plans.
One issue for the company is, according to its plan, its store portfolio includes a “sizable portion of poorly performing stores that contribute minimal value to the organization.” So about 100 of the worst-performing stores — the company has 260 locations — were selected for a financial assessment.
And this year the company is planning 42 potential store closures and three possible store sales, including one clearance center. That strategy is consistent with Bon-Ton’s announcement in November, when it said it would close at least 40 locationsthrough 2018. In addition, the plan suggests there are at least another 20 stores that should be considered for a “watch list” so Bon-Ton can monitor for “signs of future deterioration.”
With fewer stores, the plan states there’s an opportunity to reduce the company’s distribution center footprint — from three to two facilities — by removing the facility in Fairborn, Ohio. Bon-Ton’s leased distribution center in Whitehall Township would appear to stay open under the plan.
It remains unclear whether any of the Bon-Ton stores in the Lehigh Valley will close this year. In the area, Bon-Ton has stores at South Mall in Salisbury Township, Westgate Mall in Bethlehem, Palmer Park Mall in Palmer Township, on Hamilton Boulevard in Trexlertown, and near Quakertown and Phillipsburg.
In terms of retail strategy, the plan aims to boost Bon-Ton’s share of e-commerce, a segment the department store chain is “significantly underpenetrated in.” Based on its current 2017 revenue projections, the plan explains increasing Bon-Ton’s e-commerce penetration to 20 percent — from its current 12 percent — would boost revenue by roughly $200 million.
To hit those marks, Bon-Ton will need to increase its product assortment online, improve its site navigation and boost its digital marketing, the plan states.
The plan also includes something the debt-laden department store chain hasn’t been able to do in quite some time: Carry out capital expenditures.
The filing shows proposed capital expenditures of about $51 million in 2018, $42 million in 2019 and $52 million in 2020. In each of those years, more than $20 million will go toward the chain’s stores, aiming to drive a unified look and feel, improve customer experience and strengthen the brand name.
The plan also states there is an opportunity to open new stores, as Bon-Ton’s closest competitors, such as Macy’s, focus on larger markets and leave gaps in smaller areas. The business plan considers 14 new store openings for Bon-Ton over a three-year period.
“Bon-Ton stores in markets where Macy’s closures have occurred have seen a meaningful uptick in performance,” the plan states.
Bon-Ton’s stock was trading at about 17 cents on the over-the-counter market Monday.