The Bon-Ton Stores Inc. is talking to debt holders about a potential restructuring plan as the struggling retailer tries to avoid filing for bankruptcy.
The Bon-Ton Stores, which has more than $1 billion in debt, failed to make a December loan payment to lenders of $14 million and is running out of options.
Bon-Ton hired PJT Partners and AlixPartners last year to help advise it on a turnaround plan.
The three-year plan includes several initiatives including closing more than 40 stores and opening 14 new stores in smaller markets. Bon-Ton also plans to invest $40 million to $50 million a year in capital expenditures, according to a filing with the Securities Exchange Commission.
On Jan. 16, the company entered into forbearance agreements with its lenders following failure to make the debt payment within the 30 day grace period allowed after originally postponing the payment. That agreement expired on Jan. 26.
Bon-Ton, which is headquartered in downtown Milwaukee and York, Pennsylvania, has not turned an annual profit since 2010.
“As previously disclosed, Bon-Ton continues to work with our advisors and debt holders to evaluate potential options for the restructuring of the company’s balance sheet and other strategic alternatives,” said a company spokesperson Monday “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 retailer operates 267 department stores in 24 states under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers brands.
“The store portfolio contains a sizeable portion of poorly performing stores that contribute minimal value to the organization,” according to the filing. “These stores require an investment of working capital and management attention away from more profitable stores in the chain.”
This year, 42 stores could be closed and three stores could be sold. An additional 20 stores should be put on a watch list for signs of further financial deterioration, according to the filing.
Bon-Ton said it would also likely close one of its three distribution centers to save money.
Bon-Ton’s closest competitors are increasingly focusing on larger markets, with store closures occurring in smaller tertiary markets. Most notably, Macy’s closed 68 stores in 2017, with plans to close more in 2018.
Bon-Ton stores in markets where Macy’s stores have closed have seen a meaningful uptick in performance, according to the filing. For that reason, Bon-Ton wants to add more stores in small markets with little competition.
Bon-Ton is not making as much money on e-commerce sales as its competitors. As part of the turnaround plan, the company would like to increase digital marketing. E-commerce currently accounts for about 12 percent of company sales. Bon-Ton would like to increase that to 20 percent.
Bon-Ton and its debt holders will be in bankruptcy court on Feb. 4 to determine next steps.
Bon-Ton has considered bankruptcy already. On Jan. 12, Bloomberg reported Bon-Ton’s senior creditors are pushing the retailer to file for bankruptcy.
Bon-Ton stock was trading at 17 cents Monday morning.
