It will be 2018 when the last sweaters are folded, the racks rolled away and the windows papered over, but Bon-Ton Stores, now heading toward liquidation, may have met its maker 13 years ago.
That is when the regional department store chain made the boldest move in its 107-year history. It paid $1.1 billion for Saks’ Northern Department Store Group, a deal that at once doubled its size in key Midwestern markets. The acquisition also exposed Bon-Ton to mounting debt and made it less able to quickly respond to fast-emerging digital trends that reduced shopping trips to malls and department stores.
But Bon-Ton wasn’t the only major retail chain to take a large risk that year. Macy’s Inc. bought May Department Stores for $11 billion, essentially doubling its size as well.
Yet Bon-Ton, the parent of a cluster of historic department stores including Carson’s, Elder-Beerman and Younkers, apparently was less equipped to compete. It filed for Chapter 11 bankruptcy protection in February and in April was sold to liquidators.
Macy’s, meanwhile, remains the nation’s largest traditional department store chain. It struggled in 2017, but a recent turnaround strategy is proving to be promising.
What caused their paths to diverge? A number of obvious and less-evident factors played into Bon-Ton’s demise. Here are six pivotal ways the two mergers differed.
- Matters of size. In this respect, Macy’s always had the edge. In taking over May Department Stores, Macy’s became a 1,000-store coast-to-coast chain, while the expanded Bon-Ton operated fewer than 300 stores. Its acquisition of Saks’ northern department stores may have been an offensive move to better compete with the May-infused Macy’s (the Saks deal was announced after the Macy’s-May agreement), but the numbers say it all. Macy’s had far greater negotiating power with vendors, including the prices it could demand from apparel suppliers.
- The names on the doors. Macy’s made a risky but strategic decision to change all of the names of May’s store brands, including Marshall Field’s, to Macy’s. The decision triggered blowback from many loyal shoppers, but in the long term paid off. With just the Macy’s name to promote, the retailer was able to reduce and better manage its national marketing budget, and affordably launch television spots. Bon-Ton maintained the many names of its acquired stores (likely due to regional brand loyalties), which meant different ads had to be created for each brand and its market.
- The markets mattered. Macy’s, with May, strengthened its coast-to-coast presence with positions in nearly all major cities, including Chicago, Los Angeles, Houston and New York. Bon-Ton, meanwhile, remained a regional player, operating largely in secondary and tertiary markets in 21 states including Wisconsin, Illinois, Iowa and Pennsylvania. In some states, including New Hampshire, Massachusetts and New Jersey, it operated just one or two locations. To stand apart, Bon-Ton aimed to be the upscale department store in small towns, but competition evidently made this bet tough to win.
- Brand-wide tech adoption. Macy’s national presence also enabled it to more seamlessly adopt a corporate-wide omnichannel game plan, which began to take form in 2010. Many stores served as distribution centers for online orders, cutting costs and easing the process for customers. Further, the “buy online, pick up in store” model drew shoppers into its locations. Bon-Ton’s online strategy may have been compromised by its many store brands, but it did make headway, installing kiosks in stores so customers could access its online inventory. In 2015 it opened a massive direct-to-consumer fulfillment center in Ohio. However, the efforts may have come too late as adaptation of mobile shopping was accelerating at exponential rates, forming new habits.
- Exclusive names on the products. When Bon-Ton acquired the Saks stores, it did so with an eye on its private-label brands, including Ruff Hewn and Laura Ashley. These exclusive labels would help distinguish the Bon-Ton stores from competition, and it built creative teams to oversee the efforts. But Macy’s had by then been a private-label virtuoso for more than a decade, with a stable of in-house brands and exclusive third-party deals. Its expanded presence just enabled it to negotiate bigger deals with national designers, including Tommy Hilfiger and others. The upshot is some of these same brands had to withdraw from other stores, including Bon-Ton’s.
- Family matters and size. In 2004, the year before it acquired Bon-Ton generated revenue of $1.3 billion, while Saks posted $2.2 billion, 69% higher. This indicates the Bon-Ton stores were slower movers, and it may not have had the corporate insight to maintain operations of the new Saks locations. Potentially exacerbating its management structure is Bon-Ton had long operated like a family business. Max Grumbacher, grandson of the founder, insisted on not carrying debt, and the chain grew slowly. When his son Tim took over in the mid 1980s, Bon-Ton began to acquire small chains in new markets. The large Saks deal, and the changes to its operations management that likely were required, may have weakened its family-business culture.
Macy’s, in taking on the massive May, became a $30 billion chain, but it still might not have skirted all the challenges its new operations brought. It announced plans to close 100 stores in 2016, bringing it down to fewer than 600 locations, from 800 in 2014. Its revenue in 2017 declined to $24.8 billion, from $25.8 billion in 2016.
Still, Macy’s remains vigilant in its efforts to make the May deal work, and to remain relevant among customers who hold the shopping world in their palms. As it does so, Bon-Ton will fade, but its cautionary tale will linger. In years to come, the next chapter may reveal just how resilient century-old retailers can be in finding their paths to success.