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David Robinson: Tops heading into home stretch of bankruptcy

With its plan now in place to close 10 stores across upstate New York – but none in Western New York – Tops Markets is moving into the final stages of its trip through bankruptcy.

Tops said Thursday it expects the 10 supermarkets to close for good by the end of November, paring its number of stores by about 6 percent and eliminating locations that the company said are struggling financially.

It also gives the supermarket chain ample time to hammer out the final details on the last big item remaining on its to-do list in bankruptcy: Figure out how much of the company Tops' secured bondholders will own after it restructures. It is anticipated that most of Tops' debt will be swapped for stock in the restructured business.

"The swap will work," said Burt Flickinger, the Buffalo native who is the managing director at New York City retail consultant Strategic Resource Group. "Everything is going to be put in place."

The store closings were one of the final big moves in the supermarket chain's restructuring. Tops in February said about one of every eight of its stores was underperforming and at risk of closing.

Since then, the company used the added leverage it has in bankruptcy to negotiate lower lease payments. Tops has renegotiated nearly two dozen store leases, according to documents filed Thursday with the U.S. Bankruptcy Court, allowing the company to whittle its list of 21 endangered stores to the 10 store closings announced Thursday.

"The vast majority of our stores are profitable and we are seeing strong customer support continue to drive growth in these locations," said Frank Curci, Tops' chief executive officer. "That said, there are a few stores that are not performing to our standards, due to a number of factors including location, store size, lack of visibility, and lease costs."

Said Flickinger: "Tops and the landlords were incentivized to work together. If the supermarket anchor in a shopping center or a mall goes, then the whole mall goes."

There's more at stake for landlords than simply losing a big tenant. Lease agreements with the shopping center's smaller tenants often include clauses that would reduce their own rent payments if an anchor store is vacant. So a landlord who makes concessions in negotiations with Tops will keep getting full rent payments from those other tenants, Flickinger said.

One surprise in the store closing announcement was that Tops' Orchard Fresh store in Orchard Park will remain open. The Orchard Fresh concept, which features organic and specialty food items in an attempt to compete with chains like Whole Foods, has struggled to find its niche and has never been tried in other sites. Flickinger believes it is "one of the biggest money losers in the company."

But Tops has since said Orchard Fresh could be part of a proposed downtown Buffalo development project on Ellicott Street. And with Whole Foods now open in Amherst, Orchard Fresh gives Tops a way to compete directly with the newcomer, Flickinger said.

The store closings are the latest in a series of major milestones that Tops has reached in the six months since it filed for bankruptcy. The court on Thursday also approved a key pension settlement with the union that represents most of Tops' 14,000 employees, the United Food & Commercial Workers union Local One, that will save the company millions of dollars each year by phasing out its badly underfunded pension plan for those workers and replacing it with a 401(k) plan.

Tops struck a separate deal earlier this summer that eliminated a potential pension liability of more than $180 million with a pension fund for its warehouse workers who belong to the Teamsters union.

All of those agreements are important milestones for Tops, which is hoping to emerge from bankruptcy protection by the end of the year.

“We are making significant progress in our financial restructuring process," Curci said.

Less clear is how much damage the bankruptcy has caused to Tops' relationships with its vendors. Those vendors are taking financial hits of varying severity, but Tops also depends on them for favorable credit terms and discounts that help it offer shoppers prices that are low enough to compete with the likes of Wegmans, Walmart and even Aldi in the Buffalo Niagara region, Flickinger said.

"The pension plan is critically important. The union support is critically important," Flickinger said. "But the vendor support is critically important, too."

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