Dive Brief:

• Bon-Ton Stores filed for Chapter 11 bankruptcy on Sunday in order to execute a turnaround plan or even sell the company after years of declining sales and lost profits.
• The regional department store retailer — which operates Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's and Younkers stores — said in a press release that it had agreements from lenders for up to $725 million in bankruptcy financing. "We are currently engaged in discussions with potential investors and our debtholders on a financial restructuring plan, and the actions we are taking are intended to give us additional time and financial flexibility to evaluate options for our business," Bon-Ton CEO Bill Tracy said in a statement.
• According to the release, the retailer plans to close 47 stores in 2018, a process that can be accelerated through bankruptcy and is aimed at bringing the company's footprint in line with its shrunken sales base. The closings will take place over the next 10 to 12 weeks. The company's chief financial officer said in a court filing that Bon-Ton owns the real estate on 22 of its 227 stores.

Dive Insight:

Bon-Ton's bankruptcy has been months in the making — or years, depending on your perspective.

In December, the retailer missed a $14 million interest payment on a group of bonds, kickstarting negotiations over a possible bankruptcy or debt restructuring with its lenders, some of whom wanted the company to file for Chapter 11 as part of a restructuring plan, according to various media reports at the time, and which CFO Michael Culhane, who took over recently, confirmed in a court filing. Bon-Ton needed a big holiday season showing to generate cash, but instead its sales fell even as other retailers reported gains.

Bankruptcy chatter created a cloud over Bon-Ton through much of 2017. Before the missed payment, Bon-Ton suppliers reportedly began pressing for tighter terms on shipments to the retailer, echoing the lead-up to other retail bankruptcies, including Toys R Us,  Gymboree and Charming Charlie, among others. In September, the retailer hired AlixPartners for help with its turnaround efforts and began a search for a financial adviser to help with a possible debt restructuring.

In a bankruptcy filing, Culhane said Bon-Ton has faced competitive pressure from both online players and fellow department store chains, including J.C. Penney, Kohl's and Macy's.

"They are a kind of microcosm of department stores' challenges," Phil Emma, a retail analyst with Debtwire, told Retail Dive earlier this year. "The risk [for] a store like Bon-Ton is the brands they stock are the same brands everybody else stocks and the brands you can buy direct," Emma said. "What's differentiated with them compared to any other retailer selling soft goods?"

"For years, Bon-Ton has struggled to get customers into its stores and to persuade them to buy," Neil Saunders, Managing Director of GlobalData Retail, said in comments emailed to Retail Dive.

Saunders chalked up the company's struggles partly to location, as Bon-Ton positioned itself in places "where the availability of branded fashions and homewares was traditionally poor." At one time that was a competitive advantage and made Bon-Ton a destination, but now the internet has "done much to change this dynamic and has made the stores less relevant, and arguably less necessary, than they once were," Saunders said.

Morgan Stanley analysts led by Kimberly Greenberger wrote in a Dec. 21 note that TJX Cos., Kohl's, J.C. Penney, Walmart and Sears (which has plenty of financial problems of its own and is rapidly shrinking its own store fleet) have the greatest geographic overlap with Bon-Ton stores and could benefit from a Bon-Ton bankruptcy. 

Specifically, Greenberger's team wrote that 40% of Bon-Ton stores are located within a mile of a TJX concept (either T.J. Maxx, Marshalls or Home Goods). But it's Sears that has the greatest overlap, the analysts write. However, given Sears' own financial problems, that retailer is unlikely to benefit from Bon-Ton closures and could even suffer in the short-term as Sears stores compete against Bon-Ton liquidation sales.

As for a possible turnaround at Bon-Ton in bankruptcy and beyond, Saunders pointed out that Bon-Ton has had some success in building out its assortment and omnichannel capabilities, including buy online-pick up in store shopping. "However, this progress was never enough to transform a struggling business, and the meager sales gains they delivered were wholly insufficient to turn around Bon-Ton's fortunes," he added.

"The harsh reality is that while Bon-Ton's management put in great effort to make the business sustainable, they were always running up a down escalator," Saunders said.