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What will Bon-Ton bankruptcy mean for eight WNY stores?

There's a shadow of uncertainty hanging over eight Bon-Ton properties in Western New York. Its parent company, the Bon-Ton Stores, has filed for Chapter 11 Bankruptcy protection and is seeking a buyer for some or all of its business.

Local malls and plazas dodged a bullet last week when area Bon-Ton stores escaped a list of 42 locations the company announced would close as part of its turnaround plan. Another previously announced five locations didn't affect the region either.

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But that may prove to be short-term relief. The company said it has a watch list of 20 stores on the chopping block, and is taking a hard look at an additional 100 of its poorest-performing locations. Those locations have not been disclosed.

"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," Bill Tracy, president and CEO of Bon-Ton Stores, said in a statement.

The company will remain open during the restructuring. But retail experts said it's unclear whether Bon-Ton can successfully emerge from bankruptcy.

“They are undifferentiated, unclear and have become increasingly irrelevant to consumers," wrote Neil Saunders, managing director of Global Retail Data in a report.

Bon-Ton has stores in the Eastern Hills Mall, McKinley Mall, Chautauqua Mall, Olean Center Mall and the former Summit Mall, as well as in West Seneca, the Town of Tonawanda and Lockport.

So what's next for the company and its properties here?

If the McKinley Mall were to lose its Bon-Ton anchor, it could put the Hamburg mall on shaky ground, according to CMBS analysts at Morningstar Credit Ratings. The mall has already lost two Macy's stores. If it were to lose Bon-Ton, too, it would put the mall's occupancy rate at 78 percent. Analysts use 80 percent occupancy as a benchmark – anything lower than that is usually a sign of a mall at risk.

Losing a second mall anchor could allow other mall tenants to invoke co-tenancy clauses, which would allow them to terminate their leases or cut their rent payments until the anchor vacancy is filled with a satisfactory new tenant. That can put the squeeze on cash flow and quicken a mall's decline.

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The McKinley Bon-Ton is not one of the 42 stores Bon-Ton plans to close, and its lease at the mall doesn't expire until 2021. Jeff Ohle, the mall's general manager, has said sales and traffic at Bon-Ton have actually increased, and that the store, which now acts as a fulfillment center for online orders, has begun leasing additional storage space at the mall.

The effect of a Bon-Ton closure at Eastern Hills Mall would likely have less impact. The mall is in the planning stages of a drastic redevelopment, with hopes of turning the mall into an open air town center – a walkable community with shops, restaurants, a hotel and living space. When it lost its Macy's store last year, owner Mountain Development scrambled to buy the property to clear the way for redevelopment.

Bon-Ton is one of just roughly 20 stores remaining at the struggling Olean Center Mall. It is the last holdout, aside from Sears, at the former Summit Mall in Wheatfield. And has a location at the Chautauqua Mall.

In addition to the major mall anchors, Bon-Ton stores occupy giant boxes at local shopping plazas, including the Southgate Plaza in West Seneca, on Sheridan Drive in the Town of Tonawanda and on Transit Road in Lockport. If anything were to happen to any of those locations, it would leave voids in those retail strips.

A group of lenders has committed $725 million in special debtor-in-possession financing, Bon-Ton said. That money would keep the company afloat during the restructuring process, the company said.

The struggling department store chain filed papers in U.S. Bankruptcy Court in Delaware Sunday, saying it will seek a buyer for all or part of its business.

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The Pennsylvania-based company has struggled with declining sales and high debt, and has not been profitable since 2010. The company was down to just $7 million in cash, according to a filing the company made last week.

Sales at stores that had been open for at least a year – an important measure of a retailer's health – fell by 2.9 percent in the final nine weeks of last year, which encompasses the crucial holiday shopping period. That followed a 6.6 percent drop in Bon-Ton's same store sales in the previous quarter.

Online shopping, which has affected all brick-and-mortar retailers by reducing mall traffic, hit Bon-Ton particularly hard, since its business strategy was to place stores in communities that lacked a variety of fashion options. Online shopping blew those options wide open.

Another 11 retailers, such as Toys R Us, Payless ShoeSource and Gymboree, filed bankruptcy last year.

Bon-Ton Stores has 260 locations in 24 states, including furniture galleries and clearance centers. In addition to Bon-Ton, it operates under the names Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers. Some locations will close under each banner.

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