At least Bon-Ton Stores Inc. isn’t alone on the brink.
The regional department store — which is losing money, closing at least 40 stores and meeting with debt holders — has plenty of company. A study by CreditRiskMonitor of companies in retail, beauty and footwear shows at least 25 companies with public debt are teetering.
Each company feels its own individual stresses, but for most, stiff competition, relentless discounting, pressure from the web, consumer desire for better experiences, strategic missteps and heavy debt loads are proving to be toxic.
Retailers, in particular, often outlast the most dire projections as the cash flowing through their businesses pays the rent and suppliers and keeps a whole network of partners churning even as interest payments pile up.
At some point, though, the music stops. Already this has been a banner year for bankruptcies, with Rue21, BCBG Max Azria, Payless, Gymboree Corp., True Religion, Gordmans Stores, Agent Provocateur, Sears Canada and more succumbing.
Bon-Ton has hired advisers who are speaking with creditors. William Tracy, who’s been chief executive officer since August, said the retailer was working to “proactively engage with our debt holders to establish a sustainable capital structure to support the business.”
CreditRiskMonitor assigned Bon-Ton a FRISK Score of 1, giving the company a 9.99-50 percent chance of going bankrupt in the next 12 months. The score incorporates information on stock trading and volatility, the company’s own financials, ratings from bond agencies and crowd-sourced data from CreditRiskMonitor users. The idea is to use several different methods of determining risk at once to offset their various weaknesses and boil down the result to a single number.
Among the other companies with a FRISK Score of 1 are J.C. Penney Co. Inc., Neiman Marcus Group, Sears Holdings Corp., Avon Products Inc., J. Crew Group and Ascena Retail Group Inc.
While such a low rating does not mean that a company will go bankrupt, it is illustrative of the worry in the market and a signal that the companies need to get moving.
Bon-Ton, for one, is starting to take some dramatic action.
Ceo Tracy said on Thursday that the 260-door retailer would close “at least 40 locations through 2018” in order to become more lean and with a more productive base.
“We are executing with a sense of urgency as we work to enhance our merchandise assortment, drive growth in omnichannel, and implement a more focused marketing strategy to improve traffic and customer engagement,” Tracy said.
Bon-Ton’s third-quarter net losses widened to $44.9 million from $31.6 million while revenues fell 7.4 percent to $562.5 million from $607.3 million as comparable-store sales decreased 6.6 percent. Shares of Bon-Ton closed at 46 cents Thursday, flat for the day, leaving the company with a market capitalization of just $9.9 million.
When companies fall into dire straits, bankruptcy isn’t the only concern.
William Danner, president of CreditRiskMonitor, said for every company that falls into bankruptcy about three would default on their bonds.
“We’re really trying to bring attention to companies that are in real financial stress,” Danner said. “Our customers rely on the FRISK score principally to act as an alert that they really need to take steps to protect themselves.”
Danner, who looks at credit risk across industries and not just in fashion, said there aren’t obvious similarities between all companies with a FRISK Score of 1 or 2 (which indicates a 4-9.99 percent chance of bankruptcy in the next 12 months) — although there might be a certain herd mentality that hurts companies.
“We like to think of companies in a single industry all doing the same thing, but of course, doing the same thing as your competitors is a lousy competitive strategy,” Danner said. “In any business you always want to be a little bit different and everybody’s struggling to be a little different in a positive way.”
Retail and its woes are also more complex than they can seem from the outside.
“You would think it would be all about Amazon, but if you look at the list of who’s suffering, it’s not obvious to me that, for example, Amazon is taking a whole bunch of revenue from Bon-Ton,” he said.
Danner also noted that the story at Sears — one that the industry’s been obsessing over for years — is coming to a close.
“Sears has been liquidating itself for a long time,” Danner said. “The question has been, until recently: Who’s going to win this foot race? Are they going to turn the retail operations around and make them profitable first? Or are they going to liquidate the company first?’ We think there’s a pretty high chance we’re at the end. It’s almost all over except the shouting.”
However, hope always remains, even when the bills pile up.
“Being in financial straits has a tremendous way of focusing the mind of management, people stop fighting sometimes and try to figure out how to fix things,” Danner said.