Can Kathryn Bufano save Boston Store?

As the new president and chief executive officer of The Bon-Ton Stores Inc., Kathryn Bufano has a big job to do as she tries to turn around one of southeastern Wisconsin’s most iconic retail brands.

Bon-Ton, the parent company of Boston Store, has struggled in recent years with significant losses and has not turned an annual profit since 2010. Like many mid-range department stores, Bon-Ton’s stores are facing stiff competition for bargain shoppers from discount stores such as Kohl’s and Target, for upscale shoppers from higher-end stores like Nordstrom and for tech-savvy shoppers from the growth of online retail at the expense of traditional brick-and-mortar stores.

After Milwaukee officials approved a subsidy earlier this year to help keep the downtown Boston Store open, some in the local business community wondered how long the store and one of Bon-Ton’s corporate headquarters offices would remain in the city.

Bufano is a seasoned veteran in the retail industry and will draw on that experience in an attempt to improve Bon-Ton’s performance. Previously, she was president and chief merchandising officer of Belk Inc., a Charlotte, N.C.-based department store chain.

“Kathryn Bufano is extremely well-regarded and has a strong, multichannel background in the retail industry,” Doug Kass, president of Palm Beach, Fla.-based investment firm Seabreeze Partners Management Inc., wrote on TheStreet.com.

Bufano is living in Milwaukee and working out of the firm’s downtown Milwaukee office, located above its Boston Store in the Shops of Grand Avenue. The company has two corporate headquarters offices in Milwaukee and York, Pa. The company’s previous president and CEO, Brendan Hoffman, commuted to Milwaukee from his home in New York and left Bon-Ton after three years, saying the commute to Milwaukee was too difficult on his family life.

Boston Store was founded in Milwaukee is 1897. Today, the brand is one of seven nameplates owned by Bon-Ton, which has a total of 273 stores in 26 states, including 26 stores in Wisconsin under the Boston Store, Younkers, Herberger’s and Elder-Beerman brands. The company’s other store nameplates are Bon-Ton, Carson’s and Bergner’s.

The challenges that Bon-Ton faces in today’s retail industry have hit the company’s bottom line hard. The company suffered net losses of $12.1 million in 2011 and $21.6 million in 2012 and then narrowed its losses to $3.6 million in 2013. Bon-Ton reported losses of $31.5 million in the first quarter of fiscal 2014 and $36.2 million in the second quarter.

A glimmer of good news in the second quarter: the company’s comparable store sales were up 1.6 percent.

The company’s stock price (BONT on the NASDAQ exchange) at press time was trading at $8.35 per share, down from a high of $56 in March of 2007, and from $21 in May of 2013.

However, despite the significant challenges, Bufano says she is optimistic about the future of the department store industry and Bon-Ton, and that the company is committed to Milwaukee.

“The department store business from my whole time has gone through a lot of mergers, changes and acquisitions and consolidations. That’s been a fact of life my whole career,” Bufano said. “The nameplates may have changed, but if you take a look at the whole department store business and the stores that are still around, most of them are over 100 years old. So as a channel, as a place where people like to shop, department stores have been very adaptable. I think we are at the cusp of another new era in the department store business, with the combination of e-commerce, omni-channel (multi-channel retailing), and we can continue to reinvent ourselves today.”

Midwest background

Bufano grew up in Waukegan, Ill., which is only about 50 miles south of Milwaukee, and has long been familiar with Bon-Ton’s brands.

“I’ve been a Carson’s shopper all of my life,” she said.

After graduating from the University of Illinois at Urbana-Champaign, she entered the retail industry working for Lord & Taylor in Chicago. Later, she became an assistant buyer for the company in New York, and eventually worked her way up to senior vice president of ladies apparel and general merchandise manager.

Then she moved on to Macy’s, where she was the head of feminine apparel.

“Lord & Taylor has a wonderful customer, very well-defined. But Macy’s was a big department store, multi-classification, with a very, very diverse customer,” Bufano said. “I really enjoyed the diversity of (Macy’s with) a very broad range of customers, a broad range of merchandise categories, and I learned a lot in terms of that transition, and it really cemented my idea of why I think the department store business is so exciting.”

Upon leaving Macy’s, Bufano returned to the Chicago area to work as executive vice president of soft lines for Sears. She left the company after a year, and while her children were in high school, she went to graduate school at Lake Forest College in Lake Forest, Ill.

From 2006 to January of 2008 she was chief executive officer of Fargo, N.D.-based Vanity Shops Inc.

She then went to work for Belk, where she was president, merchandising and marketing, from 2008 to 2010 and president and chief merchandising officer from 2010 until recently taking the helm at Bon-Ton.

Belk is a similar company to Bon-Ton, Bufano said.

“Belk is a regional department store. It’s a little bit larger than Bon-Ton,” she said. “One of the things I really learned at Belk was how to position yourself against national competitors.”

The plan to compete

Bon-Ton’s footprint covers most of the northern half of the United States, but is primarily established in the Midwest and the Northeast.

Combined with the company’s two headquarters, some find the Bon-Ton corporate structure unwieldy. Writing in Forbes in August, retail industry consultant Walter Loeb suggested Bufano “put an end to this travesty.”

Loeb added, “Yes, some of these store names are revered and respected names, but it is necessary to streamline the company under fewer names (one would be good) and to consider closing some additional unprofitable stores.”

However, Bufano strongly disagrees with that view. She considers the company’s multiple nameplates a major asset and a key part of its localization strategy.

“Being local and being regional, we can leverage the brand loyalty behind a Carson’s customer and a Younker’s customer, and definitely I see that as part of our future,” she said. “We have the advantage of having our hometown nameplates, and that cements us as the hometown store. I know as a Chicagoan, they mourn the loss of Marshall Fields. We still have that (brand) loyalty. We still have the emotional tug if you will of people having loyalty to a Carson’s or a Younkers. Our goal is to keep ourselves and reinvent ourselves in a modern way, connecting to a modern lifestyle that our brands have done for over 100 years.”

To leverage hometown brands, the company must be actively involved in the communities it does business in, Bufano said.

“As the hometown store, it brings a lot of responsibility to those of us that work at Bon-Ton,” she said.

Bon-Ton recently opened a Herberger’s store at Cache Valley Mall in Logan, Utah, which has a population of about 50,000. The store is Bon-Ton’s first in Utah. The company does not have major plans for additional stores but will look for opportunities to add locations, Bufano said.

“We are looking at opportunities in terms of markets that we think can be high growth,” she said. “We’re fortunate that we have stores in North Dakota, Minnesota, Montana and now in Utah. That’s a big growth part of the country. Right now the West is a booming part of the country in terms of the economy and their unemployment rate, and with the whole energy sector in that part of the country. Where we feel that the demographics align and the competitive opportunity is there, we’re going to be opportunistic.”

Opportunities for new department stores are limited by a lack of mall and shopping center development nationally, Bufano said.

“It’s not like years ago when there were a lot of shopping centers and malls being built,” she said.

Bon-Ton announced recently that it will close its Carson’s Fox Valley Furniture Gallery in the Heritage Square Shopping Center in Naperville, Ill.

The company also closed its downtown Sheboygan Boston Store earlier this year, but still has a Boston Store location in nearby Kohler.

Clicks and bricks

Amazon.com and other online retail outlets have created a significant challenge for brick-and-mortar retail stores.

Bon-Ton knows it needs to improve its e-commerce services and is building a 700,000-square-foot national distribution center in Columbus, Ohio, that will be up and running next year.

“It’s going to be a state-of-the-art fulfillment center,” Bufano said. “It’s a major investment for the company. It’s going to have state-of-the-art conveyor and IT systems. It will support our e-commerce growth into the future.”

Online shoppers want to browse, research and compare prices, Bufano said.

“That’s just a fact of life that we have to be cognizant of and have that be part of our strategy,” she said.

The e-commerce part of the business and the brick-and-mortar stores can complement each other, Bufano said. The stores still have advantages over online by allowing consumers to see, touch and purchase items immediately.

“What (consumers) also like, that a department store can do, is that you can browse online and then go into a store to see the merchandise,” she said. “We’re a fashion business. We are not a book seller. We are not a TV seller. So being in the apparel categories, being in the soft home categories where people want to touch and feel and understand, that’s an advantage for us.”

Some consumers like to buy clothes online, try them on at home, and will return them to a local store if they do not like them.

“The ability to order online and then bring it back to your favorite store is another advantage that the bricks can afford as opposed to a pure play or an Amazon-type business,” Bufano said. “I know I would rather go back to a store if I’m going to exchange something, or look at something, than have to haul it over to the post office if I want to send it back.”

Next year, the company plans to provide customers with the ability to order products online that they can pick up at local stores.

“Our job is to make sure there is that seamless brand experience, so not only am I going to get the sale from search, that sale for purpose, but also that (in store) sale for impulse,” Bufano said. “That’s the synergy between the bricks and clicks, if you will, that’s the synergy with omni-channel that can help position and will position the department store of the future.”

The company’s goal is to have about 10 percent of its sales come from online.

“That’s 90 percent that’s still left for (brick-and-mortar stores),” she said.

Future in Milwaukee

Some wonder how long Bon-Ton will keep a corporate headquarters office and a department store in downtown Milwaukee. The store is part of the long struggling Shops of Grand Avenue.

Earlier this year, the Milwaukee Common Council approved up to $1.2 million, or $300,000 annually, in tax incremental financing to help maintain the Boston Store and the Bon-Ton corporate headquarters in downtown Milwaukee. With the deal, the company extended its lease for the store to Jan. 31, 2018. The TIF deal with the city requires the company to keep at least 750 full-time equivalent employees at the store and corporate headquarters.

Bon-Ton currently has 760 employees at the Milwaukee corporate headquarters office, which includes the company’s branding, merchandising, private brands and administrative personnel. The York, Pa., headquarters office has 255 employees, with the company’s finance and supply chain personnel.

Keeping the Bon-Ton corporate headquarters in downtown Milwaukee is a priority for city officials, said Rocky Marcoux, commissioner of the Department of City Development, when the TIF deal was announced earlier this year.

“It maintains a long-standing and valued retailer at this location, and it sends a message to other developers and investors that this neighborhood offers great opportunity moving forward,” he said.

However, the deal also sends the message that the Shops of Grand Avenue, which is scheduled to be sold in an online auction later this month, continues to struggle and that the Boston Store needs a subsidy to remain open.

Bufano said the company is committed to keeping its Milwaukee headquarters office.

“It wouldn’t be for the benefit of the company for us to locate out of Milwaukee,” she said. “There is a lot of retail talent in Milwaukee. It’s very, very accessible to New York, California, the Chicago market. We’re very, very well-positioned. I think we have advantages in terms of an attractive place to recruit from, an attractive city to live in and an easy place in and out for a retail organization.”

Downtown department stores have struggled and have been disappearing from mid-sized cities such as Milwaukee for years. Bufano said she is too new to the job to evaluate the performance of the downtown Boston Store and its future.

However, she said she is impressed with the direction downtown Milwaukee is headed.

“The downtown looks great, very vibrant,” Bufano said. “It’s clean and has a great vibe in terms of restaurants. I believe in downtown, and Milwaukee looks like it’s done a good job.”

Recently, some business community and civic leaders have talked about the possibility of a new arena for the Milwaukee Bucks to be built on a vacant lot at North Fourth Street and Wisconsin Avenue, next door to the Boston Store and Bon-Ton headquarters. Some versions of that concept include demolishing the Boston Store/Bon-Ton building as part of the arena project.

“It’s interesting,” Bufano said.

However, no matter what happens with the arena plans, Bufano said Bon-Ton plans to remain in Milwaukee.

“Our commitment is to be in Milwaukee and our headquarters, in terms of our merchandising arm, is going to be in Milwaukee,” she said. “That I do know.”

Get our email updates