HESS'S ENDING ITS RUN AFTER 106 YEARS; MAY, BON-TON TO BUY STORES
Byline: David Moin
NEW YORK--Hess's Department Stores is finally calling it quits. The 106-year-old regional chain, based in Allentown, Pa., has been downsizing in recent years, and on Monday it signed letters of intent to sell 20 stores to The Bon-Ton and its remaining 10 units to May Department Stores Co. Hess's fate underscores the continued turbulence in the department store industry. The roster of smaller players is shrinking fast this year, as weak chains get gobbled up by stronger ones, or simply shut down. While the most celebrated department store takeover is Federated Department Stores' merger with R.H. Macy--a move that will bring further consolidations--Federated earlier this year bought the 10-unit Joseph Horne in Pittsburgh, which will be converted into Lazarus stores. Other recent dropouts include McCurdy's in upstate New York, which sold eight of twelve units to May Co., and is currently peddling the rest, and the single unit Schuette's in Manitowoc, Wisc., which was liquidated after a 145-year run. In addition, The Broadway Stores in California continues to struggle against the competition, and rumors about Mercantile Stores as a possible acquisition target persist, though the chain denies it's for sale. Hess's parent, developer Crown Holding Co., put the ailing retailer on the selling block. According to market estimates, the chain lost $3.7 million last year. The moderate-priced mid-Atlantic chain grew rapidly in the Eighties through acquisitions and was considered a barnstormer of Middle America. It rolled out department stores with big inventories, big promotions, competitive pricing with quick markdowns and took a high-profile in not-so-high profile places like Pottsville, Pa. and Kingston, N.Y. The chain peaked at 76 stores and over $600 million in sales, but began suffering under the weight of the expansion and the recession and closed or sold 46 stores since 1990. The business started in 1888 as a soft goods concession operated by Max and Charles Hess in the lobby of the former Black Bear Hotel in Allentown. On Monday, The Bon-Ton, based in York, Pa., said it will spend $60 million, including $48 million in cash plus the assumption of liabilities for the 20 units, a 325,000-square-foot distribution center, and the Hess's name. The 20 Hess's stores did a volume of $165.7 million last year. Bon-Ton sales were $330 million. The acquisition will give The Bon-Ton another 1.4 million square feet of selling space, a 58 percent increase. Michael Gleim, senior executive vice president and chief administrator for The Bon-Ton, said Monday that Hess's will be run as a separate division, with the Hess's name maintained on the stores, until next year, and that five of the 20 stores will be dropped by 1997. May Co. did not disclose how much it plans to pay for its 10 stores, which accounted for roughly $95 million in sales last year. May Co. said it will spend $100 million to renovate and expand the units, and reopen them in 1995. Six will be operated by the Kaufmann's division; two each will be operated by the Hecht's and Filene's divisions. All of the stores are in Pennsylvania and upstate New York, and mark new locations for May Co. Headquartered in St. Louis, May currently has its biggest strengths in the Northeast, Midwest, Southern California and Texas markets. With $11 billion in sales, May Co. is still ranked as the nation's largest department store operator, but will be the second largest when Federated Department Stores merges with R.H. Macy to form a $13.5 billion operation. However, the Hess's purchase is a sure sign May Co. wants to keep up with the competition and maintain an aggressive expansion rate. Last week, May Co. said it agreed to buy 679 shoe stores from The Kobacker Co. and The Shoe Works. This year, it also bought eight McCurdy & Co. stores, and said it would keep three in operation. Four Steiger's stores, which are all being converted to May Co. units, were also bought. A May Co. spokesman would not comment on reports that May Co. is interested in purchasing Federated and Macy units that may be spun off in the merger. The Bon-Ton operates 45 units and has been a competitor with Hess's, though it's been on a growth track and is considered slightly more upscale than Hess's. The Bon-Ton seems to be bucking the trend spelling doom for smaller regional chains. Tim Grumbacher, The Bon-Ton's chairman and chief executive officer, said in a statement, "This transaction, on the heels of our recent acquisition of the 10-unit AM&A department store chain, is further evidence of our strong commitment to a strategy of growth through acquisition." The Bon-Ton said it hopes to close the deal with Hess's by the end of September.
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