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David Robinson: Liquidators put an end to Bon-Ton's hopes, dreams

The Bon-Ton Stores are going out of business.

The department store chain, which moved into the Buffalo Niagara region following its purchase of AM&A's in 1994, is headed for its final sale after the only two bidders in a bankruptcy court auction were liquidators.

Despite the hopes and efforts of Bon-Ton officials to find a bidder that would keep the stores running, none came forward after a potential bid by two U.S. mall owners was derailed last week when a U.S. Bankruptcy Court judge refused to approve a $500,000 payment to cover bid expenses.

A bankruptcy auction, held in a New York City law office, started Monday and stretched into Tuesday. Both Reuters and New York research firm Reorg Research, reported that when bidding began late Monday night, the only bidders were a two liquidators. A U.S Bankruptcy Court judge will hold a hearing on the sale on Wednesday.

The company announced late Tuesday that it would begin going-out-of-business sales once the Bankruptcy Court has approved the bid made by one of the liquidators, which included a group of Bon-Ton debtholders.

Bon-Ton's demise will leave a big void at eight shopping malls and plazas in the Buffalo Niagara region, where the department store was a longtime anchor for shoppers.

Bon-Ton President and CEO Bill Tracy said the company was "disappointed by this outcome" and had "tried very hard to identify bidders interested in operating the business."

"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," Tracy said in a statement..

But Bon-Ton's likely liquidation also illustrates the precarious nature of brick-and-mortar retail in today's online world. And it underscores how difficult it can be for retailers to successfully restructure in bankruptcy. Since 2006, almost half of the retailers that have filed for bankruptcy have ended up liquidating, compared with just 10 percent among all non-retail bankruptcies, according to a study by consulting firm Alix Partners, which Bon-Ton hired last year to help it restructure.

Even so, Bon-Ton would be "the first department store to liquidate in a number of years," said Robert Schulz, an analyst at S&P Global.

The odds were against Bon-Ton from the start. The company hadn't turned a profit since 2010. Unlike businesses like manufacturers and service providers whose main assets may be equipment that is hard to sell except at a steep discount, it is fairly easy for a retailer to liquidate. Usually, their inventory is their biggest asset. Often, a bankrupt retailer's creditors believe the inventory and assets are more valuable than the stores staying in business.

Liquidation over operation

That's the case with Bon-Ton. Late last year, the company contacted 38 potential buyers, but only seven were interested enough to sign a confidentiality agreement and none made an offer, according to James Baird, a partner at the restructuring firm PJT Partners.

Even then, the group of Bon-Ton debtholders that won the auction was pushing for a liquidation sale – a move Bon-Ton resisted as it continued to hope to find a buyer to keep the business going, according to Bankruptcy Court documents.

Bon-Ton's "survival is, at best, uncertain and in reality, unlikely," a group of bondholders said in a court filing in February. "The best and only available path for the debtors to maximize value for their creditors in these free-fall bankruptcy cases is to conduct an immediate orderly liquidation."

Bon-Ton, which filed for bankruptcy in February, had been working with a potential bidder – mall owners Namdar Realty Group and Washington Prime Group – that would have kept its stores open in many of its locations.

That group last week said it had signed a letter of intent to buy Bon-Ton and keep the business going under current management. But that potential bid came with several contingencies, including a request that the court approve a $500,000 "work fee" to cover the group's expenses as it prepared a formal bid. U.S. Bankruptcy Judge Mary Walrath rejected the work fee during a hearing last week, and the bid to keep Bon-Ton open never materialized.

McKinley Mall at risk

The liquidation will leave a big void in the Buffalo Niagara retail market. Bon-Ton has eight locations in Western New York. A Bon-Ton vacancy at McKinley Mall would put it at serious risk of financial failure, real estate analysts have said, and Bon-Ton stores fill prominent anchor space at several local retail plazas.

Bon-Ton also 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.

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

McKinley Mall had already been classified as at risk of "imminent monetary default" after one of its loans went to a special servicer earlier this month. But CMBS analysts at Morningstar Credit Ratings have said losing its Bon-Ton anchor would put the mall on shaky ground. The mall has already lost two anchors.

If it loses Bon-Ton, it will put the mall’s occupancy rate at 78.7 percent – below the 80 percent occupancy benchmark where analysts consider a mall at risk. A closure could also allow other mall tenants to invoke co-tenancy clauses, allowing them to terminate their leases or cut their rent payments, further reducing the mall's cash flow and quickening the mall's decline, analysts said.

Rent payments are hefty

Bon-Ton owes more than $172,000 in rent to the McKinley Mall's owner, Stoltz Management of Delaware. While Bon-Ton has indicated that it will pay the back rent as part of a sale, the mall's owners have objected to the proposed payment because it doesn't cover rent that accrues between the end of March and the date that the sale is completed.

Rent payments from an anchor store can be substantial, so a liquidation could leave the malls and plazas where Bon-Ton is located with a substantial financial hole to fill. At Southgate Plaza, for instance, Bon-Ton pays more than $350,000 a year in rent, plus nearly $68,000 in maintenance fees and almost $6,000 towards its share of the plaza's property insurance, according to Bankruptcy Court documents.

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 it 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 those locations, it would leave voids in those retail strips.

Online shopping, which has affected all brick-and-mortar retailers by reducing mall traffic, hit Bon-Ton particularly hard. Its business strategy was to place stores in communities that lacked a variety of fashion options, but online shopping made physical stores unnecessary, allowing consumers to bypass Bon-Ton for new options online.

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.

News business reporter Samantha Christmann contributed to this story.

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