Bon-Ton Outlines Turnaround Plan

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Photo credit: The Bon-Ton Stores

The Bon-Ton Stores has outlined two-year, four-part turnaround plan.

The plan, which was outlined in a Securities and Exchange Commission filing Monday, includes assessing its retail locations; implementing new merchandising, planning and allocation strategies; driving better marketing ROI and making capital investments in stores and back office operations.

The retailer noted that it has yet to develop an execution plan to address these initiatives. It also said it still needs to evaluate back office functions, personnel and SG&A to determine if they are sufficient for the tasks ahead.

Further, the retail group has been struggling with about $900 million in debt, most recently missing a Dec. 15 interest payment that necessitated a forbearance agreement with its lenders, which has since expired. Bon-Ton is in ongoing talks with debt holders to improve its capital structure, presumably to enable it to avoid a bankruptcy filing and to give it the opportunity to execute on the outlined turnaround measures.

The company had $2.56 billion in revenue in 2017. Under the new plan, which Bon-Ton developed with its operational and financial advisor AlixPartners, it projects revenue of $2.54 billion in 2019 based on a turnaround in comp store sales from a 7 percent drop in 2017 over the prior year to a 0.8% year-on-year increase in 2019. Bon-Ton also projects sequential omnichannel sales growth from 15.1% in 2017 over the previous year to 23.6% in 2018 and 24.6% in 2019.

While assessing its retail fleet, the the company put 100 locations under the microscope. What it found was a drag on the business. “The store portfolio contains a sizable portion of poorly performing stores that contribute minimal value to the organization,” according to the filing. “Closing stores account for approximately $200M of total sales across Bon-Ton, but contribute minimal EBITDA.”

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Ultimately, 42 locations will be closed and another three sold. Twenty more will likely go on the company’s watch list.

Additionally, the smaller chain size has presented the opportunity to close one of three distribution centers, which it anticipates will result in a $1.5 million savings.

The new merchandising plan seeks to improve gross margins and stabilize topline sales. The company will optimize its assortment toward bestsellers and brands, grow e-commerce, improve replenishment capabilities, invest in stores and accelerate sell-through to improve markdowns.

The Bon-Ton has identified the need to go after core essentials and “wow” product and decrease its dependence on seasonal fashion items. It will also attempt to move private label from 18 percent of stock to 25 percent, though given competitors like Macy’s, which is striving for 40 percent, and Kohl’s which sits at 46 percent, it sees opportunity to be even more aggressive.

The retail group has outlined a goal of increasing e-commerce penetration from 12 percent in 2017 to 20 percent, which it estimates would result in a $200 million increase in revenue. To do so, Bon-Ton plans to provide greater depth and breadth online, improve site navigation, increase digital marketing and incorporate a marketplace model.

The company will overhaul its marketing approach, pulling dollars from unprofitable marketing channels like direct mail and funneling them into areas like social media and keyword search. Overall, the retailer estimates it can reduce marketing costs by $10.7 million while increasing incremental revenue by $22.2 million this year.

Bon-Ton’s capital expenditures will include changing 11 Bergners and 13 Boston Stores to Carson’s in 2018 to better leverage that brand name. It will also spend up to $23.5 million to augment store fleet and up to $19.9 million in merchandising systems. The retailer will also open up to 14 new stores through 2020 to take advantage of opportunities created by Macy’s closures.

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“Bon-Ton is bell-positioned to increase its market share as competitors realign their footprint, especially in markets in which Bon-Ton operates. Bon-Ton has significant improvement in these markets and expects these trends to continue,” the filing noted.

As part of the changes, Bon-Ton will eliminate 63 roles from marketing, private brands and merchandising for a $5.4 million cost savings.

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