Byline: Dianne M. Pogoda

NEW YORK — The Bon-Ton is hungry and on the move.
The York, Pa.-based department store has built a hefty business in secondary metropolitan markets in Pennsylvania, Maryland, upstate New York and West Virginia by gobbling up weaker regional department store chains.
“York is such a small market that in order to grow, we had to move beyond,” said Tim Grumbacher, chairman and chief executive officer.
In the past three months, The Bon-Ton has nearly doubled in size to 65 stores, acquiring the 10-unit Adam, Meldrum & Anderson chain in Buffalo, N.Y., and 20 units from Hess’s Department Stores, primarily in Pennsylvania and New Jersey. The acquisitions mean Bon-Ton’s open-to-buy will rise by 70 to 80 percent.
The AM&A deal brings Bon-Ton into a market with a population of 1.5 million, more than three times the size of Harrisburg, Pa., its previous biggest market.
The purchase — a bargain for Bon-Ton — cost $2.1 million in cash, plus the assumption of $40.6 million in debt and other liabilities. AM&A had sales of $114 million in 1993.
The publicly owned Bon-Ton is acquiring 20 of the 30-unit Hess’s, based in Allentown, Pa., for $60 million, giving Bon-Ton its first store in western New Jersey, bolstering its presence in eastern Pennsylvania and adding $166 million in sales. The stores vary from 30,000 to 160,000 square feet, and most are anchor tenants in shopping malls or in strip centers.
AM&A will be integrated by Nov. 1 into the Bon-Ton system and converted into Bon-Ton stores, though Hess’s will be run as a separate division through next spring. Eventually, Hess’s will be fully integrated into Bon-Ton, said Michael Gleim, senior executive vice president and chief administrative officer.
These stores will continue to be serviced by their existing distribution channels and support lines, Gleim said.
“We would have rather had more time to digest all this,” said Gleim, “but the opportunities were right.”
Bon-Ton executives say they’re not actively hunting for more acquisitions at this time, but wouldn’t pass up another good opportunity.
In flexing its new merchandising muscle, the company is expanding its overall moderate and basics business by about 10 percent, said Terry Jarvis, president, who joined the company last October.
“Plus, we’ve added some better business in apparel,” he said. “We’ve taken over our shoe operations, adding such lines as Bandolino and Nine West.”
Previously, Bon-Ton’s shoe departments were leased to Wohl Shoe.
Over the past year, Bon-Ton has added Saville and Jones New York divisions of Jones Apparel Group; Country Classics; Eagle’s Eye; Rafaella; Karen Kane and Woolrich. Dana Buchman will be added in a few select stores where the company sees a demand for a bridge-career line.
Jarvis also said petite and large sizes have experienced solid growth, and have expanded selections now.
Cosmetics has been growing at a double-digit pace for the past several years, Jarvis said. Strong performers have been Clinique, Lancôme and Estée Lauder. The company has also added fragrances.
Jarvis said the company has increased private label to about 10 percent of inventory and the goal over the next four years is to build it up to 20 to 25 percent of stocks. It’s most prevalent in casual sportswear and knits.
The Bon-Ton also stepped up its customer service, improving associate training so sales people have more product knowledge and learn to assist customers in fitting areas, and instituting a clientele book program, to help associates develop good relationships with customers. The retailer has a “certified value” program, identifying key items — mostly basics, like turtlenecks, fleece, T-shirts, shorts and denim — as having everyday value prices. This helps assure customers won’t be marked down during the season.
The company also has special-sizes clubs for petite and large-size women. These customers get special mailings and receive a discount based on spending, for example, 30 percent off the seventh unit purchased.
Over the past five years, it has invested about $5 million in new technologies and systems to handle the growth.
“We now have a planner/distributor system in place that allows us to better place merchandise in stores where it’s needed,” Gleim said. “We started this in 1991. It’s a program generally used in companies that are much larger.”
The company has shown improved results this year. For spring, comparable-store sales were up 6.1 percent, said Gleim, and the company expects fall to show growth in the mid-single digits.
In the second quarter ended July 30, the company narrowed its loss to $64,000 from $572,000 a year ago.
Sales for the quarter climbed 13.6 percent to $80.7 million from $71 million and same-store sales were up 3.7 percent. For the year ended Jan. 29, Bon-Ton earned $10.7 million on sales of $336.7 million, with women’s apparel generating 31.5 percent of volume. All apparel, including women’s, men’s, junior, children’s and lingerie, accounted for 72.2 percent of sales.
Gleim said the company improved gross margins by controlling inventory with timely markdowns.
He noted that the AM&A stores performed well in their first month under the Bon-Ton umbrella.
Rapid growth such as Bon-Ton has experienced has caused problems for some retailers, such as Hess’s, which surged in the Eighties, but downsized in the Nineties and will soon go out of business. However, analysts are praising Bon-Ton’s acquisition strategy.
“Their strategy has been to buy [stores] cheap. It’s worked for them in the past, and should work for them now,” said Terrence McEvoy, analyst with Janey Montgomery Scott. “They haven’t bought anything for a couple of years, and they’ve been building the infrastructure to be able to handle this growth.”
He added that Bon-Ton has the distribution capabilities and systems in place to make these acquisitions fairly painless.
McEvoy said the AM&A and Hess purchases are a good fit, although it requires a lot of work to integrate the new stores into Bon-Ton’s systems.
“They’re spending $10 million to integrate AM&A, to allow those stores to move more into cosmetics and apparel and less in home,” he said. “That’s where Bon-Ton’s strength is.”
A recent report by Robertson, Stephens & Co. said Bon-Ton has established itself as the moderate-to-better branded alternative to mass merchants in its region.
The report added that Bon-Ton has strengthened its field organization, and has become more disciplined in sales planning and focusing assortments.
Amanda Dagata, analyst with RBC Research in Philadelphia, said the company had been doing a good job with its merchandising, and hiring Jarvis has enhanced the process. “In the past year, he has really turned things around,” she said. “He’s added to the selection and added higher-priced items.”
As for the acquisitions, Dagata said the AM&A purchase has gone smoothly and the demographics are similar to Bon-Ton’s other markets. The Hess operation will take a bit longer to integrate, but those stores are also in areas with a similar customer base.
“Bon-Ton has been working on these acquisitions for a long time,” she added. “It’s difficult that they came at the same time, but the company should be able to handle it with no problem.”