2801 East Market Street, P.O. Box 2821
The Bon Ton Stores, Inc. is a leading regional department store chain with sales in fiscal year 1995 of $607.4 million. The company concentrates on serving medium size communities, and as of April 1996, operated 67 stores in Pennsylvania, Maryland, New York, New Jersey, Georgia, and West Virginia. Bon-Ton stores are typically anchor stores in shopping malls and the primary department stores in their communities. They offer a wide assortment of moderately priced name brand and private label clothing, cosmetics, shoes, accessories, and home furnishings. The Grumbacher family controls 94 percent of the company's stock.
Bon-Ton was started in 1898, when Max Grumbacher and his father, Samuel, opened S. Grumbacher & Son, a one-room millinery and dry goods store on Market Street in York, Pennsylvania. From the beginning, according to company material, the Grumbachers operated their business "with a close attention to detail and a conviction that business success would come to those who offered customers quality merchandise at a fair price with careful attention to their individual needs and wants."
As automobiles replaced horses and the country became more industrialized, through a world war and the Roaring Twenties, the Grumbachers continued to meet their customers' needs. The store grew bigger and, in 1929, the company was incorporated as S. Grumbacher & Son. In 1931, Max's son, Max Samuel (M. S.), joined the company. When Max died in 1933, his widow, Daisy, and their two sons, M. S. and Richard, continued the business, forming a partnership in 1936. Following World War II, the family decided to expand operations. In 1946, a second Bon-Ton was opened, in Hanover, Pennsylvania. Two years later, the company moved outside Pennsylvania, acquiring Eyerly's in Hagerstown, Maryland, and in 1957 purchasing McMeen's in Lewistown, Pennsylvania. These early moves set Bon-Ton's policy of growing into adjacent areas by opening new stores and acquiring existing businesses.
The 1960s, 1970s and 1980s: Years of Growth
The next three decades saw The Bon-Ton Stores continue to expand. In 1961, M. S.'s son, M. Thomas "Tim," entered the business, representing the fourth generation of Grumbachers. During the 1960s, the company opened new Eyerly's and Bon-Ton's in several Pennsylvania communities and one in West Virginia. They also started a discount chain, Mailman's, and, in 1969, retired the McMeen's name. During the 1970s, as the popularity of shopping centers began to grow, Bon-Ton opened eleven new stores in Pennsylvania and West Virginia.
The 1980s formed a period of rapid consolidation in the retail department store industry as major chains bought their competitors. The Bon-Ton Stores began the decade by opening more stores, establishing a new division, Maxwell's, and acquiring Fowler's department store in New York. When Tim Grumbacher was made CEO in 1985, the company operated 18 stores in four states. Two years later the company made a major move, buying the 11-store Pomeroy's chain from Allied Department Stores. That purchase made it possible for the company to move into seven new markets in Pennsylvania.
It also marked the beginning of a major shift in the company's marketing strategy and operations to concentrate on moderate-priced merchandise. The company discontinued the Mailman's discount chain, closed those stores, and eliminated the low margin product lines such as appliances and electronics at the Pomeroy's stores. It renamed all the remaining Eyerly's and Maxwell's either Bon-Ton or Pomeroy's and placed emphasis on providing a deep selection of brand name merchandise, such as Liz Claiborne, Levi Strauss, Alfred Dunner, Esprit, and Estee Lauder. The company also instituted its "Certified Value" program, which maintained value prices on a limited number of key items within each of its major product groups, such as turtlenecks, fleece, and denims.
With the increased income being generated from the Pomeroy acquisition, the company hired senior executives from national chains to strengthen its management and made significant investments to improve its operating and management information systems. In 1989, E. Herbert Ross, who had been with Federated Department Stores for 24 years, was named president and COO.
The Early 1990s
The company began the decade by changing its logo in 1990 and completing the integration of the Pomeroy units. As those stores achieved the level of quality and style of the core stores, their name was changed to Bon-Ton. All stores carried apparel for the whole family, cosmetics, and accessories. Twenty-eight also carried home furnishings, such as china, linens, housewares, and gifts. Four offered bedding and furniture. All stores contained leased shoe departments, and many also had leased fine jewelry departments and leased beauty salons. Women's clothing was the largest merchandise category, representing 30.5 percent of net sales in fiscal year 1990. Net sales for 1990 increased 6.4 percent over 1989, with stores that had been open for 12 months or more (a common retail industry measurement) increasing their sales by 7.8 percent.
In 1991, the company, S. Grumbacher & Son, changed its own name to The Bon-Ton Stores, Inc. and went public, selling four and a half million shares on the NASDAQ market. At that time, Bon-Ton operated 33 stores, varying in size from approximately 30,000 to 160,000 square feet. Most were one of several anchor tenants in shopping malls in secondary markets; the others were located in or adjacent to strip shopping centers.
Prior to the initial public offering, the company developed a real estate strategic plan, identifying markets with similar demographic and competitive characteristics within or contiguous to its existing markets. Based on this plan, and despite the 1990-1992 recession which battered the department store industry, Bon-Ton continued to grow. It opened four new stores in New York and Pennsylvania and acquired the two-store Watt & Shand chain in Lancaster, Pennsylvania. In September 1992, President Herb Ross resigned and was replaced by Terrance Jarvis. In 1993, the company closed more stores than it opened and comparable store sales had a loss, a first for the company. However, net sales increased slightly, to $336.7 million from $333.7 million the year before.
The Bon-Ton Stores saw tremendous activity in 1994. In July, it acquired the Adam, Meldrum & Anderson Company (AM&A) for $2.1 million and the assumption of $40.6 million in AM&A's debt. The transaction added ten stores in and around Buffalo, New York. In September, it purchased 19 Hess Department Stores (Hess's), one of its major competitors in Pennsylvania, for $60 million. And in October, it acquired certain assets of C.E. Chappell & Sons, Inc. (Chappell's), a six-unit department store company based in Syracuse, New York. These transactions doubled the company's size to 70, added 3.1 million square feet of retail space, and opened up three new markets--Buffalo and Syracuse, New York, and Allentown, Pennsylvania.
As Bon-Ton grew in the region, outlet stores for brand names such as Liz Claiborne and London Fog, and discount stores such as K-Mart and Wal-Mart, were becoming more popular. These stores offered customers, particularly those in suburban and secondary markets, shopping alternatives and low prices. The Bon-Ton Stores competed by concentrating on customer service, investing in its work force to do so. Sales associates received training in selling skills, customer service, and product knowledge. The company offered a liberal exchange and return policy, free gift wrapping, free shopping bags and special order capability. Selected stores also offered a personal shopper service. Associates were encouraged to keep notebooks of customers' names, clothing sizes, birthdays, and major purchases. In 1994 customers opened 250,000 new Bon-Ton credit card accounts, providing a customer database with over two million names.
The company also competed with its merchandise. To accomplish its goal of fashion leadership, Bon-Ton has been among the first in its markets to identify fashion trends, to advertise and stock new merchandise and to carry a full complement of sizes and colors of the items it sold. During 1994 the company added more name brands to its inventory, including Nautica, Tommy Hilfiger, Ralph Lauren Home, and Susan Bristol, and expanded its private label brands to ten percent of its sales.
The company ended the leasing of its shoe department and made it a company-owned business. This allowed Bon-Ton to offer footwear more in line with its apparel merchandise and resulted in a sales increase of 20 percent. The company also developed a Big and Tall Men's area. The concentration on customer service, more upscale fashion lines, and internal niche marketing led to an increase in comparable store sales of 6.1 percent for the year. Combined with the business from the 35 newly acquired stores, Bon-Ton's net sales for 1994 rose 47 percent to $494.9 million, and earnings soared to $1.23 per share or 55.3 percent.
1995 and Beyond
Nineteen ninety-five proved to be a difficult year for The Bon-Ton Stores as it integrated the AM&A, Hess's, and Chappell's stores into its operations. The company had net losses of 19 cents per share in the first quarter and 18 cents per share in the second quarter, but Wall Street analysts did not appear worried, since comparable-store sales increased 4.8 percent for the first half compared with 1994. As Peter Schaeffer, a stock analyst with Dillon, Read, & Co. told Susan Reda in an October 1995 Stores article, "Bon-Ton is a substantial company and this year's weak earnings do not connote a disaster in the making. The potential for this chain is great. I'm looking for a rebound next year."
The losses in the first half were due largely to poor sales performance at the AM&A and Chappell's stores. To bring the AM&A units in Buffalo into line with The Bon-Ton Stores' moderate-price apparel, the company had to eliminate the budget store business, which accounted for ten percent of AM&A's sales. In Syracuse, the company had to reduce Chappell's heavy emphasis on clothing and introduce its other merchandise offerings. Because the merchandise mix in the Hess's stores in Allentown was comparable with that of Bon-Ton, the changeover was less difficult, and sales performance was in line with expectations. During the year Bon-Ton acquired four vacant stores in Rochester, New York, giving the company locations in each of the four dominant malls serving that market. Late in 1995, Bon-Ton opened a 75,000 square foot store in Elmira, New York.
Another factor in the company's financial picture was the cost of its leadership change. In January, Terrance Jarvis resigned as president, and a search began for his successor. In August, the company named Heywood Wilansky president and CEO. Wilansky had held those positions at the Foley's division of May Department Stores Company, and May Company filed a breach of contract suit against him and The Bon-Ton Stores. Although the suit was settled in October, the litigation charges contributed to losses in the third quarter.
In addition, 1995 brought the company increased home furnishing business, including china, linens, housewares, and gifts. Ken McCartney was hired from Horne's to become Bon-Ton's first general merchandise manager. He added furniture in 19 stores and saw home furnishings increase from ten percent to 14 percent of the company's merchandise mix.
In January 1996, the end of its fourth quarter, the company closed three stores and announced plans to close five to seven underperforming stores, eliminating 700 positions. That restructuring represented the final steps in "digesting" its acquisitions. For its fiscal year 1995, The Bon-Ton Stores reported net sales of $607.4 million, a 22.7 percent increase from 1994. Because of fourth quarter restructuring charges of approximately $6 million, along with nonrecurring charges in the third quarter of $3.5 million, Bon-Ton had a net loss of $9.2 million for the year. Excluding those charges, net income for 1995 was $200,000 or $0.02 per share. Comparable-store sales for the year increased 0.2 percent.
By the mid-1990s the outlook for the department store industry was much brighter than it had been a few years earlier. "The shock and surprise of the mid-1990s is department stores' viability. Their bottom lines are a lot healthier than anyone would have forecast," retail consultant Alan Millstein said in a November 1995 Business Week article. Department stores were expected to slowly regain market share from outlet stores and discount retailers, according to a January 1996 Business Week article. As it entered the last half of the decade, however, The Bon-Ton Stores faced national competition (from May Department Stores) in 13 of its 44 markets and the problem of catering to the economically-stretched middle-class customer. Ed Dravo, an investment analyst in San Francisco, recommended selling Bon-Ton shares in his column in the September 12, 1995 issue of Financial World. "Not only does Bon-Ton have economics playing against it, it is also in the retailing category that Wal-Mart likes to extinguish. Revenues are flat and earnings have disappeared."
However, the restructuring at the end of 1995, merchandise changes (including private brands and home furnishings), continued customer services, and centralized functions able to support a large store base appeared to place the company in a good position. Sales for February and March totalled $84.8 million, a 3.8 percent increase from the year before, despite the Blizzard of '96. Comparable-store sales increased 4.4 percent. Although Wilansky assumed the position of CEO, the Grumbacher family continued to be represented on the board of directors, with M. Thomas Grumbacher serving as chairman. Since the family held 94 percent of the stock and remained involved with the company, there appeared little likelihood of a takeover by a national department store chain.
Principal Subsidiaries: The Bon-Ton Stores of Lancaster, Inc.; The Bon-Ton National Corp.; The Bon-Ton Trade Corp.; The Bon-Ton Receivables Corp.; Adam, Meldrum & Anderson Co., Inc.
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