Another Big Retailer Gets Liquidated

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Yves here. I went to Elder Beerman when we lived a couple of times in Dayton. My mother worked there as her first job after college.  Big retailers like Carson Pirie Scott and Meier & Frank with their grand flagship stores were once pillars of thriving downtowns. Their closures kill a lot of jobs and also represent an ending of a long tradition in commerce.

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street

Bon-Ton Stores – it operates department stores in 23 states under the brands of Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, and Younkers – filed for bankruptcy in Februaryin the hopes of being able to restructure its debt in court and go on as a going concern. But it has now thrown in the towel, so to speak.

The bankruptcy judge today approved the sale of Bon-Ton Stores’ assets to a joint venture of two liquidators and creditors holding Bon-Ton’s second-lien secured notes:

The liquidators: Great American Group and Tiger Capital Group.

The creditors: PE firms, hedge funds, and investment banks that had scooped up the bonds for cents on the dollar: Brigade Capital Management, Wolverine Asset Management, B. Riley FBR, Riva Ridge Master Fund, Bennett Management, and Alden Global Capital. 

Their joint bid was about $777 million, “a person familiar with the matter” told the Wall Street Journal. The joint venture will close all remaining 250 department stores no later than August 31 – on top of the 40 stores Bon-Ton had already closed before filing for bankruptcy – sell the inventory and other assets, and layoff off the remaining 24,000 employees.

Bon-Ton Stores had already warned on April 6 that it would close a 743,000-square-foot distribution center in Ohio that it had opened three years ago.

At the time of the bankruptcy filing in February, Bon-Ton Stores had obtained a debtor-in-possession (DIP) loan commitmentof up to $725 million to get it through the bankruptcy process. Of this commitment, $575 million are outstanding. The purchase price approved today has enough cash in it to repay the outstanding DIP balance.

The payment for the $725 million purchase price also includes the “value” of the bonds of $125 million that the group of bondholders contributed to the deal.

The joint venture won in the bankruptcy auction on Tuesday against a bid from a group of liquidation firms Hilco Merchant Resources and Gordon Brothers Retail Partners.

A third group never never submitted a bid. The group included the credit-focused hedge fund DW Partners and mall owners Washington Prime Group and Namdar Realty Group. Their intent had been to acquire Bon-Ton Stores as a going concern and keep the stores open.

When Bon-Ton stores announced the winning bid on Tuesday, it said in a statement:

While we are disappointed by this outcome and tried very hard to identify bidders interested in operating the business as a going concern, we are committed to working constructively with the winning bidder to ensure an orderly wind-down of operations that minimizes the impact of this development on our associates, customers, vendors and the communities we serve. We are incredibly grateful to all of our associates for their dedicated service to Bon-Ton and to our millions of loyal customers who we have had the pleasure to serve as their hometown store for more than 160 years.

That Bon-Ton Stores would face liquidation if it could not find a buyer became clear in bankruptcy court on March 12, when the company set out the rules for an auction of its business as a going concern. The company said if there’s no bid that satisfies the court and the creditors, it would likely be forced into liquidation.

These creditors – namely said holders of the second-lien secured notes – had been clamoring all along for asset liquidation and did what they could to stymie the restructuring negotiations before and during bankruptcy. Now they got what they wanted.

This will be the second liquidation of a major retailer this year. The first was that of Toys “R” Us. After filing for Chapter 11 bankruptcy last September and promising that it would remain in business, it announced on March 15 that it would close all its 735 stores in the US, liquidate the inventory, and be done with it. About 33,000 jobs will disappear over the next few months.

The retail sector is the second largest employer in the US, with 15.7 million jobs. Over the past 12 months, it actually created63,000 jobs. But that was in segments that are not under all-out attack from e-commerce, such as gasoline stations, grocery and beverage stores, and auto dealers. The segments that are under attack have shed nearly 70,000 jobs [for more, including charts, see…  How Does Amazon Fit into the Jobs Report?].

These 12-month totals were as of March and do not include the 33,000 Toys ‘R’ Us jobs and the 24,000 Bon-Ton jobs that will disappear over the next few months.

Bon-Ton and Toys ‘R’ Us, before they filed for bankruptcy, occupied nearly 60 million square feet of retail space, which will be vacated by this summer. Toys ‘R’ Us stores are already wreaking havoc among commercial mortgage backed securities. No wonder that two mall owners tried to keep Bon-Ton from liquidating by buying it. It was a move of desperation. It’s a big job to do something useful with 60 million square feet of retail space that becomes vacant all of a sudden in the middle of the brick-and-mortar meltdown.

More broadly, there could be about 12,000 store closures this year in the US, according to data from Cushman & Wakefield, cited by the Wall Street Journal. Last year, which was bad enough, there were about 9,000. While retail sales overall are growing at a healthy clip, the segments that are under attack from e-commerce are getting crushed. And it has started to impact the national averages for commercial real estate. Read…  As Malls Get Crushed, Commercial Real Estate Prices Fall to Lowest in Nearly Two Years

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  1. pissed younger baby boomer

    I live in Chambersburg PA from 2002 to 2005 at that time the big stores were JC penny ,sears , Bon ton , and Value City located in Chambersburg Mall , After I moved out of state of PA Value City went out of the business ,I read on line or news paper JC Penny close it store at that mall it was the second to shutter, All because of Reaganomics. .

    1. Louis Fyne

      Carter set the tinder, Reagan lit the match, Clinton poured the gasoline, bush went to Iraq, Obama shrugged

        1. Louis Fyne

          Clinton and Obama solidified the new status quo.

          There might have been a shot at turning things around in 1993 or 2009. Not any more.

  2. PlutoniumKun

    Just an observation here from the other side of the Atlantic – there are problems in retail here too, but not nearly as severe and curiously, it is mostly US retailers who are suffering – Toys r Us obviously, but also fast fashion outlets like Forever 21 have failed in attempts to penetrate European markets and are selling up or cutting back rapidly. Walmart have regularly failed in their forays into Europe and Asia. H&M’s problems seem largely restricted to the US. Even horrible Tesco seems to have regained its footing.

    To an extent, the US may be leading the way in the disruption caused by Amazon and other online retailers, and Europe and elsewhere may follow in a few years. But I think the structure of US retailing also seems to encourage boom and bust – both the malign influence of private equity and short term stock owners and also loose zoning regulations which encourages overbuilding of retail space in the good times (in most of Europe and Asia its significantly harder to build out of town retail space for regulatory reasons). I often find it ironic that retail developers complain constantly of regulations, when its the constraint created by those regulations that saves their asses during every downturn.

    1. Colonel Smithers

      Thank you, PK.

      The growth out of town malls, the internet and mail order, including Forever 21, is threatening Mauritian High / Main Streets, known as Routes Royales, too. The malls are usually developed by sugar estates diversifying / consolidating.

      On an island the size of Greater London and with about 1.25m people, there are more than a dozen malls, corners of Europe and America in the Indian Ocean. Small / mom and pop shops, often decades old, are dying, as are the (small) town centres.

      One developer has called for a halt, but that is as much the fear of competition from better located competitors, including those owned by his cousins.

      The warnings from the diaspora went unheeded. We were accused of wanting to keep the island(ers) from progressing or obsessing with the colonial heritage, think the French Quarter and rest of Louisiana.

      1. Colonel Smithers

        I forgot to add that French High Streets are suffering, too. There is a backlash. Carrefour is closing some hypermarkets and even its town centre Carrefour City convenience stores.

        1. PlutoniumKun

          Yes, I’ve always been interested by the way the French managed for years to have their cake and eat it – huge out of town hypermarkets, plus vibrant town centres. Of course some sectors were destroyed – much as I love Decathlon stores (I’m a sucker for any nice outdoors kit), they are the reason why its almost impossible to find an independent bike shop or sports shop in a French town.

          But I think a combination of economic strain and the sheer weight of out of town shopping is now damaging so many French towns and villages. Its a terrible pity. But at least even the smallest French town still usually has a reasonable selection of independent shops, in contrast to the UK. I was in Birmingham a few months ago and I found it almost impossible to find anywhere to eat in the city centre that wasn’t part of a chain, and similar with any shops.

          I think the reasons are often a combination of historical factors and other less tangible issues. In Britain and Ireland I think early penetration by railways everywhere undermined many local small businesses going back to the 19th Century. And in France, better local governments (or at least, more locally responsive ones) have invested far more over the years in their towns. A simple thing like a good municipal market hall can make a huge difference.

          Although interestingly, I was talking to a French woman a while ago from a village in the Dordogne. She says her village has been rescued – by English expats and retirees. They are taking over the old bars and bakeries and keeping them going, while local young people leaving for the big cities.

          1. Colonel Smithers

            Thank you, PK.

            I agree with you especially about locally responsive government. There’s a lot to be said for the immediacy of la mairie.

    2. Andrew Dodds

      There was Maplins as well. Although how a specialist electronics shop was meant to survive in the age of eBay and Amazon was always a question..

    3. visitor

      Not just US retailers primarily. Several long-standing German retailers went bankrupt in the past few years — Schlecker, Kaiser’s, Karstadt. They were operating entirely or mostly in Germany, but were big names there.

      As far as I know, Karstadt was taken over after insolvency by a foreign investor, while Kaiser’s was dismantled and some of its outlets taken over by competitors; Schlecker is entirely gone.

  3. The Rev Kev

    Well this is certainly depressing reading. It was not enough that corporate America shipped so much of American industries overseas over the past few decades and abandoned their workers and their communities. We now have these financial mobs crashing and burning retail chains around the country so that they can make that year’s bonus for themselves and smashing local economies.
    Maybe they are thinking that people don’t need retail chains as you can get it all on Amazon instead. Add to this process Silicon Valley trying to put out of business hundreds of thousands of drivers, hotel chains, cab companies, etc. and what do you have left? Not a lot from what I can see.
    Back in the 90s you had such a thing as Russian and Ukrainian brides being a thing as young, desperate women sought to make new lives for themselves in other countries at the time and hopefully help their families as well. If you want to know when America is in really dire straights, it will be at the point when American brides become a thing around the world.

    1. Colonel Smithers

      Thank you, Kev.

      I have heard of EU27 brides for UK guys needing a parachute from Brexitannia…

      I know two French women married to younger Mauritian guys as the women have SMEs on the island and need to get their papers in order.

      1. PlutoniumKun

        A Vietnamese friend of mine resident here told me (only half joking I think) that she was quite angry at the legalisation of gay marriage in Ireland – she said it reduced the number of unmarried gay men willing to marry women like her so she could get her EU citizenship. I pointed out that it raised the possibility of her finding a willing female… her reply was unprintable.

        1. Colonel Smithers

          Thank you, PK.

          I may need an Irish bride. Does it help that I am Catholic and like horseracing?

    2. Knot Galt

      Well, India and China are facing the dilemma of having OVER 70 million more men than women.

  4. tomk

    Maybe a clever architect or developer (or idealistically, a cooperative group) could retrofit malls as affordable housing. Plenty of parking. Community spaces. Music, art, dance studios.

      1. Michael Fiorillo

        Yes, but they’d likely need a lot of retrofitting, since those structures are essentially flimsy, sheet metal boxes, built for an intentionally short life span…

    1. Adam Eran

      “Lifestyle Centers” are shopping centers with housing. Wikipedia says they earn 50% more than single-use, all-commercial shopping centers.

      We’re short of affordable housing, and the sprawl-ification of America deprives us of those mixed-use developments (Where’s the second story of apartments in malls in the ‘burbs?). Pedestrian-friendly, mixed use (commerce, offices & residences) and mixed-income (apartments among the mansions) is a market-tested solution to a lot of these problems. It typifies the “nice” areas in towns across the world.

      It may take a village to raise a child, but we stopped building them about 1950.

      Solutions include “Smart Growth” (AKA New Urbanism, Transit-oriented Development [TOD] or Traditional Neighborhoods), which means zoning focuses on building sizes rather than uses. They also include taxing the unearned increment away, to kill land speculation and more sprawl. See for the full story there.

      But most “planning” departments are far more concerned about filling the pockets of the land speculators than building human habitation. Jane Jacobs says something like this [a paraphrase]: Modern planning is positively neurotic in its willingness to embrace what doesn’t work and ignore what does. It’s a form of advanced superstition, like 19th century medicine when doctors believed bleeding patients would cure them.

      1. MyLessThanPrimeBeef

        Let’s not forget 100% realistic female robots.

        “Actually, you’re way better than my last human wife. You never complain and I know you will not get the art collection.”

    2. JohnnySacks

      All tied to a single bathroom plumbing and point, drains and supplies buried under a concrete floor. No windows, central air handling units. Re-fitting these spaces is not a simple or inexpensive task. Possibly after seizure for non payment of property taxes they can be put into public service, but what state or municipality will be able to afford the refit after the tax base is siphoned off by Amazon etc.?

  5. blennylips

    Not to deny the vulture capitalists their due, but the US oversupply of retail space per capita has to have something to do with it, right? Maybe they were just growing the crop before harvest?

    America’s vast swaths of retail space have become a burden in the age of e-commerce
    In 2015—the most recent year with comparable data available—the US had about 23.6 sq ft of retail space per person available, according to estimates from PwC. As the Financial Times reported (paywall), that’s more than twice the amount in Australia, and roughly five times that of the UK and other European countries.

    1. Arizona Slim

      ISTR hearing my father say that our country was over-stored. And that was back in the 1990s.

    2. lyman alpha blob

      The overabundance of retail space, especially the big box store type, has always seemed more than a little insane to me.

      My small city hosts a large mall area. When it was built a few decades ago, it was the only large mall in a fairly large region and maybe the whole state. Now you can drive up and down the interstate and see similar malls every 20-40 miles or so, with a lot of them containing a Lowe’s right next to a Home Depot, or WalMarts and Targets in close proximity, etc. Funny thing is the population hasn’t really increased that much to warrant so many new stores. There is really no need for so much retail space as they are all selling the same or very similar things – cheap crap imported from China.

      But they were never built due to any need – Lowe’s built because Home Depot was already there and the same with the other chains. They aren’t going to let the competition set up shop unopposed and nobody is going to tell one chain they can’t build, because markets. So we get all this sprawl just so competing chains can try to put each other out of business, which they sometimes manage to do, leaving behind what I imagine hell might be like – paved over desolation, cracking and crumbling.

      No fan of the vulture capitalists, but much of this retail needs to die and never be replaced if we want to live on a habitable planet.

  6. Potato Guy

    We were encouraging our mall to put some multistory apartments at the anchor store ends. Also smaller shop spaces would be attractive. 600 instead of 6000 sq.ft. would make the possibility for opening a store more realistic for aspiring entrepreneurs. Maker labs, charter schools and daycare for all ages would probably change the old mall dynamic too. So much opportunity, so little time.

  7. linda amick

    It is too bad Americans consider no long term consequences of their actions when making a “buck” is concerned. All the people I know, including family support Amazon as the best shopping experience due to them having everything plus quick delivery. The fact that local retailers are rapidly going out of business is of no concern to these people.
    My longer term concern and question is this: What happens when gas prices rise significantly (ME war between Iran and Israel for ex) and shipping rates skyrocket? Either Amazon prices will be MUCH higher than would-be local stores or goods will have delayed deliveries.
    So sad most humans are such short term thinkers. Karma

  8. Mirjonray

    When I found out my local Bon Ton shop was going out of business, my first flippant thought was that it was because I can actually afford to buy clothes there during their frequent clearance events. (The implication is that if I can find clothes I want to buy, that fit me perfectly, at a price I can afford, there must be something wrong with their retail model.) I’ll add that, unlike most clearance events at other stores that feature ugly clothes that don’t really fit anyone, my Bon Ton shop’s clearance items are actually quite attractive.

    I live in a Midwest town that has a fairly upscale regional shopping mall. So far it’s bucking the trend and still appears to be thriving. I’ve gotten out of the habit of shopping there but I do wander through there once or twice per year. Over the last few years I’ve noticed that everything is a lot more affordable, to the point where I’ve told myself that I really should shop at that mall more often. Now I’m wondering if the prices are low not so much because of good old-fashioned competition coupled with how everything is made overseas, but because if they raised the prices no one would shop at these stores anymore. I’m also wondering if the mall would be able to absorb one more shock to the system before it goes belly up.

    Moral of the story is, I predict that if I suddenly come home with a whole new wardrobe, that means the economy will crash shortly.

    1. sleepy

      My midwestern town, population 27,000, has now lost its JC Penney’s, Sears, KMart, and now Younkers.

  9. Wukchumni

    We lost the best multi-purpose sporting goods chain on the west coast a few years back in the usual fashion of how thriving businesses go under, thanks to private equity stripping the carcass.

    There’s still Big 5-a laughingstock of a sporting goods store, but Sports Chalet was Nordstrom’s compared to the former being akin to Ross Dress For Less, in the scheme of things.

  10. Peter Maranci

    “But that was in segments that are not under all-out attack from e-commerce” – actually, competition from e-commerce is not the primary cause of these bankruptcies. Toy-R-Us, for example, was still profitable. The primary cause of the retail apocalypse is hedge funds.

    They (Bain Capital, in the case of Toys-R-Us) borrow to acquire control of a retail chain. They then have the chain take out massive loans; in the case of Toys-R-Us, a loan for five billion dollars. Some of those funds are used to repay the loan that the hedge fund took out to acquire them. The rest of those funds are taken by the hedge fund itself, along with anything else of value that they can take from the chain (I suspect that that includes as much of employees retirement funds as possible).

    Burdened with impossible debt, the chain struggles to avoid bankruptcy but eventually capitulates. In the meantime, the hedge fund(s) move on to their next victims. Rinse, lather, and repeat.

    We’ve only seen the tip of the iceberg so far. Hedge funds have been doing this a LOT lately, and we’ve seen less than 5% of that debt come due thus far. In the next five years, there will be an enormous increase in hedge-fund-caused bankruptcies. America will be left with more empty chain stores than open ones.

    It’s worth noting that chains which are still in private hands are generally doing well. Costco, for example, has seen its profits skyrocket. Competition from e-commerce did kill off brick and mortar chains in some sectors, such as book shops. But in general, the destructive effect of e-commerce is more a myth than reality – a myth that conveniently ignores the fact that these retail deaths are deliberate murders, rather than failures to compete.

  11. Matthew G. Saroff

    You gotta love the business model: Private equity uses the assets of the companies that it acquires to purchase them, and then sells off assets to pay itself “Management Fees”

    We need to change the bankruptcy code to put PE on the hook when the inevitable bankruptcy occurs.

  12. polecat

    After we’ve tripped through the next several stair-steps down the economic escalator, the ‘mall’ will look, and feel, as that of the one depicted in District 12 .. a la ‘The Hunger Games’ …
    Might want to hang on to those mockingjay pins.

  13. Sutter Cane

    Of course private equity, online shopping, and retail overbuilding are all factors.

    But the biggest factor is simply that when you don’t have enough money, shopping is a chore and not entertainment. Americans are stressed and impoverished. Shopping online also allows you to easily compare prices and find the best deal. Trying to find the most cost-effective way to fill your needs is not fun, and people don’t want to linger over the task any longer than necessary, or travel out of their way to do so.

    1. Arizona Slim

      Shopping? Entertainment? I wasn’t aware that those two words traveled in the same sentence.

      1. polecat

        This is how it’s done, or at least it was in my day as a yout :

        You make an excursion down to the food court … where you swig down an Orange Julius as you nosh on a Cinnabon, allthewhile watching all the other shopping freaks … before heading over to the Nature Co. .. to buy moar useless plastic crap ! ….

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