For Bon-Ton, founded in 19th century, an uncertain future

NEW YORK (AP) — The future of Bon-Ton Stores, saddled with debt and faltering sales, looks tenuous after the department store chain filed for bankruptcy protection Sunday.

Even as it plans to reduce it store foot print, jazz up its store label assortments and reduce its debt load, it still struggles with making itself stand out in a fiercely competitive market place.

The filing makes Bon-Ton the largest retailer to file for bankruptcy so far this year. It joins several dozen others that filed for Chapter 11 last year, including Toys R Us, Payless ShoeSource and Gymboree Corp. More are expected to follow as many retailers are struggling with similar challenges, including big debt loads.

The U.S. retail and apparel industry had 11 defaults last year, compared with seven in 2009 as a result of the Great Recession, according to Moody's. In the meantime, Moody's has about two dozen distressed retailers on its watch list so far this year, which includes Nine West Holdings Inc. and Claire's Stores Inc. That means stores with poor credit ratings or liquidity, weak credit and what the agency calls challenged competitive positions. That surpasses the 19 from last year and during the Great Recession.

"In the current environment of pricing transparency, cutthroat pricing and more-demanding consumers, retailers must have strong balance sheets if they're to remain competitive," Moody's Christina Boni notes.

In a note published Monday, Neil Saunders, says that the Bon-Ton brand — and all of its banners that include Elder-Beerman and Carson's — are far from healthy.

"Even with breathing space, the future of 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," Saunders, managing director of GlobalData Retail wrote. "They 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 to survive."

Bon-Ton has survived a score of severe economic downturns, including the Great Depression, but finds itself in uncharted territory today.

While Amazon.com has revolutionized the way people shop, the behavior of Americans had already been diverging radically both in terms of what they buy and where they buy it. The changes have been so sweeping they've left many stores, particularly department stores, fighting for customers. However, some of Bon-Ton's peers like Macy's and J.C. Penney and plenty of other retailers saw sales rebound this past holiday shopping season, lifted by the tail winds of an improving economy.

There have been signs for some time that Bon-Ton was in trouble and that did not ease heading into the most recent holiday season.

Sales at established Bon-Ton stores, a critical gauge of a retailer's health, slid 2.9 percent in nine-week period before the New Year. Those sales had tumbled 6.6 percent in the prior quarter. Bon-Ton runs 260 stores in 24 states, largely in the Northeast and Midwest.

While some of the retail and department stores that have sold Americans goods have struggled, Amazon for the first time booked more than $1 billion in profits during its most recent quarter.

Bon-Ton, which has dual headquarters in York, Pennsylvania, and in Milwaukee, is now in talks with debt holders about restructuring $1 billion in debt. It's closing about 47 stores early this year in Wisconsin, Pennsylvania, Illinois, Indiana and elsewhere.

"We are currently engaged in discussions with potential investors and our debt holders on a financial restructuring plan, and the actions we are taking are intended to give us additional time and financial flexibility," CEO Bill Tracy said in prepared comments Sunday.

Bon-Ton received a commitment of $725 million in debtor-in-possession financing to operate during its restructuring process.

All department stores are attempting to overhaul their appearance, along with what they are offering customers and how they get it to them.

In a recent regulatory filing, Bon-Ton said it would accelerate that campaign as it tries to catch up with Kohl's, Macy's and J.C. Penney, who are devoting major resources to better compete online.

"Many of Bon- Ton's stores were in areas where the availability of branded fashions and homewares was traditionally poor," said Saunders. "However, while this once made them a focal point and a destination for local shoppers, the internet has done much to change this dynamic and has made the stores less relevant, and arguably less necessary, than they once were."

Attempts by Bon-Ton to generate excitement in stores have mostly fizzled.

The company in October opened FAO Schwarz toy shops in almost 200 stores (FAO Schwarz shut down as an independent retailer two years ago).

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