Brick & Mortar Meltdown: Bon-Ton Department Stores Hires Bankruptcy Advisor

Vitamin World plans to file for bankruptcy, Perfumania Holdings just filed. And Toys R Us… All in just two weeks.

Bon-Ton Stores, Inc., which operates about 260 department stores largely in the Northeast and Midwest under the names Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, and Younkers, has hired PJT Partners, which describes itself as “a leading advisor to companies and creditors in restructurings and bankruptcies around the world.”

Faced with falling sales and customer traffic, the company is trying to refinance debt and prepare for a possible bankruptcy filing, “people familiar with the matter” told the Wall Street Journal.

Bon-Ton had already hired turnaround firm AlixPartners to help improve its operations but added PJT to focus on the financial aspects, “the people” told the Journal.

Bon-Ton’s debt and shares found their way onto WOLF STREET for the first time in November 2015, in Capital Destruction Rages Beneath S&P 500 Tranquility after it reported crummy results, blaming the “unseasonably warm weather” and “continued weakness in overall traffic trends.” That day, its already beaten-down 8% notes plummeted well below 40 cents on the dollar, and its shares crashed 39% to $1.21.

In January 2016, Bon-Ton’s 8% notes reappeared in Defaults and Restructuring Next for Retailers, at which time they traded at 33 cents on the dollar.

Yesterday, the notes traded at 40 cents on the dollar, and the stock was down to $0.69 a share.

In May 2015, shares had traded at around $7. In May 2007, at around the peak of the boom in leveraged buyouts – when there were hopes that a private equity firm would buy out the retailer, as they had done with so many others that have now become part of the brick-and-mortar meltdown – shares had spiked to over $56. But that LBO didn’t happen.

So signs that Bon-Ton was in trouble have been out there for over two years, but in an era of unlimited liquidity and artificially low interest rates, waiting for the inevitable requires patience.

In the last quarter, Bon-Ton reported that sales fell 7% to $505 million on dropping customer traffic. Sales have been falling every year for at least three years. Its growing online sales didn’t make up for the plunge in brick-and-mortar sales. Bon-Ton generated a quarterly net loss of $33 million, on top of the $134 million it had lost over the past three years.

It reported total long-term debt of $856 million plus about $300 million in capital leases, financing obligations, and “other long-term liabilities.” Its cash balance was down to just $6.3 million, and on July 29, it still had $171.5 million available to borrow under its credit line with Bank of America – so it’s not going to run out of money tomorrow. But the day is approaching.

In its report on retailers in July, Standard and Poor’s warned about weak recovery for creditors in case of default by a slew of retailers that are headed for a debt restructuring or bankruptcy, including Bon-Ton.

And it pointed out that a number of recently defaulted retailers weren’t able to restructure and continue but instead “have largely closed shop and liquidated their assets.” Among them were The Limited, American Apparel, Wet Seal, and Sports Authority, all heroes of our Brick-and-Mortar Meltdown theme. Alas, “recovery prospects in a liquidation scenario are often dramatically lower than when a company continues to operate,” and this “is especially true in the retail sector because most retailers are asset light – meaning most creditors are highly dependent on profitability and cash flow as a source of repayment.

Indeed, what assets does a retailer have that leases its stores? Inventory to be sold off at liquidation sales. Bon-Ton lists $658 million in merchandise, which is likely worth less when sold at a fire sale. But it has $200 million in accounts payable, $856 million in long-term debt, and $300 million in other obligations, plus things like accrued payroll and benefits. So creditors are going to come up woefully short in a liquidation.

Bon-Ton is just the current episode.

On September 6, Toys R Us was said to have hired a bankruptcy law firm. The company was subject to $6.6 billion LBO in 2005, and by now, the private equity firms involved – Kohlberg Kravis Roberts (KKR), Vornado Realty Trust, and Bain Capital Partners – have stripped out cash and piled on enough debt to topple the company.

On September  5, 2017,  Vitamin World, a vitamin and supplement seller with 345 stores, was said to have plans for a bankruptcy filing as early as this month, hoping to get out of exorbitant lease agreements for a number of its stores, people familiar with the plans told Reuters . CEO Michael Madden said that the agreements were negotiated by its previous owners, vitamin maker NBTY Inc. The current owner, private equity firm Centre Lane Partners acquired it last year for about $25 million.

On August 26, Perfumania Holdings Inc., a fragrance retail chain filed Chapter 11 bankruptcy with plans to reorganize around a core of its better-performing stores and shed the remainder, according to the Wall Street Journal. The company had about 336 stores before 2015. Since then, it shuttered almost 100 stores and now wants to shutter another 64, which would leave it with about 162 stores.

The company, which lost money in each of the recent years, is impacted by “many of the same macroeconomic challenges plaguing the retail industry as a whole,” CEO Michael Katz said in court papers: declining mall traffic, the shift to online retail, changing trends, and expensive leases.

Expensive leases are a common theme among failing retailers. Under the Fed’s asset price inflation efforts, commercial real estate prices have soared over the past eight years, and landlords have relentlessly jacked up rents, but that equation doesn’t work out in the real economy where brick-and-mortar retail is already struggling mightily. And bankruptcy is one way to get out of those leases – and it sounds like an increasingly common solution.

Private equity firms did it again. Read…  Brick & Mortar Meltdown: Toys R Us Hires Bankruptcy Law Firm

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  49 comments for “Brick & Mortar Meltdown: Bon-Ton Department Stores Hires Bankruptcy Advisor

  1. Rates says:

    Private Equity. The very best of American inventions. Never bet against America and the free market.

  2. cdr says:

    I am familiar with Bergner’s, Carson’s and Herberger’s. All are good places to find off season items on sale. Otherwise, full or close to full retail price. That’s the problem. I’m not going to pay $80 for a pot I can find for $25, more or less, at Marshalls or Amazon.

    Likewise, lots of what they sell I don’t buy anymore because tastes and preferences have changed (economist terms). Or I’m too old to need it anymore (used to like Nat Nast. Now I’m big on heavy sweatshirt pull over hoodies. I look maybe better.)

    I think this has more to do with buggy whips than depression, unless you work in retail.

    • Joan of Arc says:

      I am old too, in my seventies. First they threaten to take away Toys R Us where I buy all my personal toys, and now they are going to take away Bon Ton Stores where I buy all my Bon Bons. What are they planning to do to me next?

    • cdr says:

      On a larger scale, this is an example of the economics of the free flow of information. Retail reflects a competitive economics model. Specialty retailers who compete well can charge a higher (discounted) price. Those who charge retail with no differentiation to support them are failing. Otherwise, discounters are prevailing today. Income levels are less influential as information allows income to be spent more efficiently. Retail would probably be like this even if interest rates were higher and providing income to savers.

      Yet to embrace the Retail Model, but likely to follow soon, is the Central Bank model than forces higher asset prices than the market would bear without their interference. When it breaks, it will look a lot like the retail model. Only the bankruptcy discussions will involve financial instruments rather than shoes, shirts, and make-up. People’s savings will be involved. Careers will be in jeopardy.

      Wolf, you have been reflecting what the financial industry will encounter as soon as Central Bank artificial support diminishes and later ends. A perfect analogy. Hurricane Irma. Date uncertain but coming.

  3. mean chicken says:

    The grass is generally greener over the failed septic field.

  4. Lee says:

    You people in the USA just don’t know how to market your stuff!!

    Here in Oz the vitamin business went nuts as Chinese were buying up all sorts of stuff and then shipping it back to China.

    If you want to see the effect on shares prices in this category see Blackmores.

    Then you have milk powder – at one time retail supermarkets were putting limits on how many cans of baby milk formula you could buy as the same thing was happening. See a company called Bellamy.

    And even in Japan the Chinese tourists were and are buying all sorts of items from Japanese stores to carry and ship back to China although that has cooled somewhat. Makes up for all the Japanese that can not buy as much anymore.

    So the solution is easy: just get millions of Chinese into the country to buy up everything!!!

    They already own a lot of real estate – just get them to buy at retail………………

    Oh, I forgot, they are the ones that made the stuff and sent it to the USA so that in debt, dumb Americans could buy it………………

    My bad!

    • mean chicken says:

      “they are the ones that made the stuff and sent it to the USA”

      LOL, that’s just what I was thinking.

    • Mike G says:

      There are malls in Southern California doing very well catering to Asian immigrants and tourists from mainland China.

      • alex in san jose says:

        Today I was in a Guitar Center that’s near a sort of mall in my area called “Santana Row”. As a local, of course I never go there and have never been. But it’s the kind of place foreigners with deep pockets will go to to buy “American” stuff.

        There’s some spill – over into Guitar Center, the result being I had some very obviously Japanese fly-in-and-buy types sitting next to me while I strummed tunelessly on a guitar while singing some old 1940s songs I’m sure they’d never heard. (I was trying this to see if I can sing and strum at the same time, and it looks like this will be possible for me.)

        But on why brick and mortar is having a bad time…. the floor in this shop has gotten so dirty it’s even bothering me, and I suppose 5 years without a thorough vacuuming will do that. So I looked at the little shop vac (actually called a Husky) we have here to see if it needs a bag. It does, so I looked around online to see who sells them. Lowe’s does not. Home Depot sells a bag that will fit, but they’re considered pretty crappy bags. The good ones, it seems, are called MultiFit bags, but no place locally has them. There are some hole-in-the-wall vacuum cleaner repair places that may have them, but that’s $6 in transit fare, and typically higher prices because well, they’re mom and pop places and that’s just what they do.

        The bags are $10-odd on Amazon. Since I have Prime, shipping’s free. They even come with an extra retaining band. And I was able to go just a little bit out of my way (to a different sketchy 7-11 than the usual sketchy 7-11, because the locker in the usual one was “full”) to pick them up from an Amazon locker.

        • Nick says:

          There is no such thing as free shipping. This is the mindset of the typical braindead consumer just like “cheaper” healthcare. Yeah you may not be paying for it but someone is, Amazon has a deal with the USPS so your .gov is subsidizing a private corp. to the tune of billions. Amazon is the antithesis of free markets but keep drinking the kool aid.

        • Kraig says:

          Nick below is right plus the interstate highway is a massive government subsidy paid by taxpayers that’s why Amazon is taking longer to expand into toll dominated Europe. If the company has to bear the brunt of the costs then that’s either loss or greater price. Which allows it to do best on rare items (there are even companies who forward delivery from Amazon to a neighbouring a state and chargd the user . People check locally first. Amazon second ( why youe Americans worry about socialist healthcare but accept communist highways is beyond me) even France has tolls

  5. Petunia says:

    Today just by coincidence I went by the old BCBGs and they were taking the sign down off the store. I heard it finally closed a week or two ago. The entire shopping area was almost deserted on a Friday afternoon at lunch time.

    • Kasadour says:

      Soon, it’ll be on Dan Bell’s Dead Shopping Center series.

      It’s game over for brick and mortar retail in American

      • alex in san jose says:

        Kasadour – Except, Big-5 Sporting Goods, a chain where I am, seems to be doing well. Ross (“Dress for Less”) is doing well. Sprouts and Whole Foods are doing well. I believe Home Depot and Lowe’s are doing well.

        There are a lot of “iconic” stores like Toy-R-Us that are not doing well because we’re no longer a 5-kids-and-a-station-wagon society any more. I literally grew up in that kind of family. That era’s just gone.

        • Nick says:

          Whole Foods is not doing well. Where did you hear that? The novelty has worn off and the competition has caught up.

          And Big 5 stores sell absolute garbage when it comes to sporting goods, gear etc. People like you are funny. Americans love cheap shit but then whine and complain when all their good paying middle class jobs are shipped overseas.

  6. michael Engel says:

    This weekend have a potential for some major meltdown.
    1) Hurricane Irma might might hit Houston & oil facilities for the
    second time.
    Irma is a category 5 hurricane, spinning in counter clock motion,
    moving like a huge tire.
    It’s currently rolling over N. Cuba.
    For Irma hot water is like an oil slick, Cuba coast is friction, forcing Irma to hug N. Cuba coast and slightly slowing it down.
    If Irma, – which is extremely focused & powerful – enter the gap between southern FL. and Cuba and reach Marathon & key West
    (piece of paper for Irma), it will cont’ to roll over N. Cuba, with a
    counter clock spin and reach the western part of Cuba, which is
    slanting down in direction of Yucatan.
    Once Irma leave Cuba behind it can hit any target, including Houston,
    for hit # 2, since Aug 24th 2017.
    Meteorologist, for some reason, filter this option.
    2) This weekend we can see brick & mortar evaporation, plasma.

    • Joan of Arc says:

      It sounds like you want Houston to get hit a second time. Whatever in the Sam Houston did Houston do to you?

  7. Gershon says:

    Corporate raiders pushing their blood funnel into once-vibrant American companies, sucking them dry of “equity,” then leaving the pillaged husk of the dead and dying companies and their bereft employees behind for local communities to deal with. Yet election after election the sheeple vote for their own economic demise.

    • Dave says:

      You are being cruel when you say, “Yet election after election the sheeple vote for their own economic demise.”! Who should people vote for? Most of the politicians are bought and paid for. We have poor options presented to us. Hillary and Trump. With 350 million people in the U.S. is that the best there is? The forecast calls for more pain!

      • Gershon says:

        Sheeple who vote for the corrupt status quo have no right to complain about what they voted for.

        Hillary was a one-woman crime spree with a 30-year history of corruption, scandals, and influence-peddling, not to mention her appalling tenure as a neocon Secretary of State, yet millions of Americans cast votes for her.

        Trump was a New York con man with a long history of dodgy dealings and flawed character, but he at least campaigned as a populist and nationalist, and the Establishment clearly loathed and feared him. That, plus that fact he wasn’t Hillary, was reason enough to vote for him, though he has wasted no time selling out his base and walking back his campaign rhetoric.

        It is time to withdraw the consent of the governed if the Republicrat duopoly keeps putting up Wall Street stooges who are bought and paid for by their billionaire oligarch donors, and serve only their interests. It’s not difficult to go to Open Secrets dot org and see who each candidates campaign contributors are.

        By refusing to vote for the corrupt, crony capitalist status quo and voting for candidates the Establishment clearly opposes, both parties might finally get the message that the people of this country are on to their swindles and demand better.

        • Frederick says:

          Well said once again Mr Gershon my friend This is the reason that I have not voted since 1984

        • Nodal 65 says:

          Jim Webb for President in 2020

        • Lee says:

          I find it interesting that the Republicans have done so well at the state and local levels except in the left wing bastions such as California, the east coast states, and the big cities such as Detroit and Chicago.

          Contrast this with the mess in CONgress – useless and really unable to accomplish much of anything.

          Overall CONgress deserves the low ranking it gets in polls.

          To be frank, there are some real nuts and losers there on both sides, but IMO more so on the democrat side.

          How in the world some of those people ever got elected in the first place is amazing. More incredible is how they manage to keep getting re-elected.

          How do they manage to even function in everyday life is another question!!

        • Petunia says:


          There’s a book out called “RatF’ked” (not kidding), which tells how the republicans got the help of the democrat black caucus to support their redistricting. The blacks got safe districts to run in, all black, and the republicans got safe districts too, mostly republican.

      • Joan of Arc says:

        I thought the forecast called for more rain!

  8. michael Engel says:

    I am watching a meteorologist predicting that Irma will move north on the western side of FL.
    With a counter clock spin ==> it cannot roll up on Fl western side !
    It will be squeezed, passing the gap and burst to the west.

  9. penfold dangermouse says:

    in addition to the usual private equity points made and retail missteps, it’s a story of the disappearing middle class.

    Less disposable income = less clothes buying and buying more conservative fashions so one stretches their clothing buck.

    Think of the hey-days of fashion from 1950 to 90’s. Since 2000, fashion, as worn by ordinary people, hasn’t budged much.

    Compare fashion from 2000 to 2017 and 1960 to 1977.

    • Joan of Arc says:

      Get realistic and compare fashion with 1931 – 1933 during the depression.

      • alex in san jose says:

        Yep I wear 1980s used shoes (Doc Martens, they’re practically eternal) and clothes that are functional. The same woven short sleeved shirts with plaid-ish patterns you see every Indian IT guy wearing, bought from Ross, black T-shirt underneath because I’m a rebel that way, bought from Target. Haircuts are $9 where I go, it’s between the storefront church (some kind of holy rollers, they can really rock out) and a pinata shop, it’s a #1 buzz on the sides, #2 buzz on top, and just a lil’ longer in front. I’m nice, though, and tip them $2-$3. Pants/shorts are 5.11 which is a cop/security guard brand, durable as hell, comfortable enough, and look decent.

        With the economy the way it is, I’m really beginning to deeply understand why Ralph Nader notoriously bought all those military shoes cheap so he’d not have to worry about buying shoes any more.

        • Brian says:

          Docs are great. I have bought 10+ pairs of the made in England era off ebay. I do buy US made pants and jeans. It is not easy, though.

        • alex in san jose says:

          Brian – my daily wear low-quarter Docs were from a resale store here called Black & Brown, for $50. I have some boot Docs, 10 or 12 hole I forget, that I actually got “new old stock” in the box from someone who got them from someone else, dunno how they never got worn…. but they came into my hands for a $20 spot. I haven’t worn them yet just tried them on, but I need to wear ’em in for the rainy season.

          There were simply so many English-made Docs sold in the 80s and so many people and kids who bought them and then went from Goth to “office casual” or something so they got stored away.

        • Nick says:

          You sound like my cheap frugal hypocrite father in law who is a multimillionaire. He shops at Goodwill and pinches pennies claiming to be some savvy business man who walked to school uphill both ways in two feet of snow as a kid. He claims to love less government and free markets. I’m the ahole when I point out he is a public education retired teacher who is living off a government pension, who made his money in a stock market fueled by copious consumers of which he is not. He’s never done anything to help anyone, including helping his own family and kids get ahead. Meanwhile, the Chinese and Indians come here and help each other open businesses, pay for school, buy houses etc.

          He enjoys his almost 30k DOW retirement years while not realizing its the $20 trillion dollar debt, trillion dollar credit card and student loan bubbles etc. fueling all these fat stock portfolios over the last 20+ years.

          He got his why should he care if anyone else does. You sound like his baby boom mindset. You like cheap crap but would never retire on penny stocks type of hypocrisy.

  10. raxadian says:

    So more companies gets hollowed up until they can’t take more cash from it anymore and then disappear.

    Of course by the time somewhere in the future, this kind of stuff is declared illegal, it will be too little too late.

    I ask again, is there any country were doing this kind of stuff is both illegal and people get arrested and go to prison for doing this?

    Thankfully the 0% interest rate scam is ending, saflt taypaers are the one footing the bill.

  11. Kasadour says:

    I was just in Macy’s in downtown Seattle a week ago- prime real estate in Seattle, right off Pike Street and Third near Westlake Center right near the Puget Sound.

    The store was utterly devoid of shoppers. Employees in the cosmetic department were huddled together in groups of threes here and there, chatting amongst themselves, looking bored AF.

    No shoppers. But I got down there in time for the Antifa/Black Lives Matters weekly Saturday march in downtown Seattle. I guess these protester folks aren’t doing a lot of shopping at Macy’s.

    • The only shoppers left in the malls in Seattle are the Chinese. They all congregate in certain stores. Where I live it’s Aritzia Canada. Thousands of them flood through that store while the other clothing stores are completely empty all day long.

      • Kasadour says:

        I saw a lot of Chinese in Bellevue Square.

        • Joan of Arc says:

          When I was a kid they used to tell me if I dug a hole down far enough I would end up in China. That sounded like a four letter word called WORK. I did nothing for another 65 years and lo and behold the Chinese have come to me. Sometimes it pays to do nothing.

  12. Old Farmer says:

    A rural small town near me had one busy, prosperous NAPA auto parts store. About a year ago O’Reilly opened an auto parts store a block away, and a few months after that Autozone opened a store another block away. Now instead of one prosperous store, there are three languishing ones. Classic cameo of overbuilding brick and mortar–still going on. Interestingly, the rural people are very loyal to the original store–it continues to be fairly busy while the other two are empty of customers.

    • night-train says:

      In several neighborhoods in my small city, Advance Auto Parts, O’Reilly’s and a local parts store are located so close together that in my prime I could have thrown a baseball from one to the other. Literally as close to each other as the center field fence to home plate. Seems like something has to give. But, I think my gears must have started slipping about 2012, based on my understanding of how the world works. I thought I had it figured out before then.

      • Joan of Arc says:

        You did have it figured out. The problem is in your throwing a baseball.

  13. Scott says:

    I just came across this article about the bankruptcy of a medium size (31 store) chain in Southern New England.

    I think this case is more of the normal course in a very difficult industry facing new challenges (Amazon) rather than PE.

  14. Jarhead John says:

    On the ground with the Bon-Ton scoop from Pittsburgh—-Love walking through our local store….Would love to spend some cash on their merchandise….Reach for a sale flyer, only to find a list of exclusions on everything but the light fixtures…This has been the Bon-Ton business model for years….Would never find a real and actual sale on their offerings…Still waiting to spend some cash…

    • Joan of Arc says:

      You can’t go wrong buying Bon Bons at Bon Ton. If you don’t like Bon Bons, then you can buy Won Ton soup at Bon Tons. If you don’t like Won Ton soup, then there is no hope for you in Bon Tons.

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