The Bon-Ton Stores, Inc. History

Address:

2801 East Market Street
York, Pennsylvania 17402
U.S.A.

Telephone: (717) 757-7660
Fax: (717) 751-3198

Public Company
Incorporated: 1929 as S. Grumbacher & Son
Employees: 9,000 (2001)
Sales: $749.8 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: BONT
NAIC: 452110 Department Stores

Company Perspectives:

The Bon-Ton's strategy is to exploit niche-building opportunities in secondary markets, providing quality merchandise that fits its customers' lifestyle, along with the convenience of local department store shopping and a high level of service. The Bon-Ton remains committed to being the neighborhood store known for total customer satisfaction.

Key Dates:

1898:: Max Grumbacher opens Grumbacher & Sons dry goods store.
1929:: The company is incorporated as S. Grumbacher & Son, Inc.
1946:: The company's second store opens in Hanover, Pennsylvania.
1961:: Bon-Ton begins an era of rapid expansion.
1990:: The company changes their logo and applies the Bon-Ton name to all stores.
1991:: S. Grumbacher & Son, Inc. changes its name to The Bon-Ton Stores, Inc and the company goes public.
1994:: The company competes with outlet stores by offering improved customer service.
1995:: Bon-Ton adds more home furnishings to its apparel mix.
1998:: Bon-Ton offers a second public stock offering.
1998:: The company creates the charitable Bon-Ton Stores Foundation (BTSF).
2002:: Bon-Ton's growth comprises 73 stores in nine states.

Company History:

The Bon Ton Stores, Inc. is a leading regional department store chain with sales in fiscal year 2001 of $749.8 million. The company concentrates on serving medium-sized communities, and at the start of 2002, operated 73 stores in Pennsylvania, Maryland, New York, New Jersey, Georgia, Massachusetts, 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.

Early History

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 World War I 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, Inc. In 1931, Max's son, Max Samuel (M.S.), joined the company. When Max the elder 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

During the next three decades, The Bon-Ton Stores continued 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 stores 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 11 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 to 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 Esteé 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 information management 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, and offered cosmetics and accessories. Twenty-eight stores 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 net 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 (IPO), the company developed a strategic real estate, 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 that 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 E. 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.

Acquisitions Continue to Add to Company's Growth

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 Kmart 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 workforce to provide personal shopping skills when working with customers. Sales associates received training in selling, customer service, and product knowledge. The company offered a liberal exchange and return policy, free gift-wrapping, free shopping bags, and special order capabilities. 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 emerged as 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 10 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

The year 1995 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-priced apparel, the company had to eliminate the budget store business, which accounted for 10 percent of AM&A's sales. In Syracuse, the company had to reduce Chappell's heavy emphasis on clothing and introduce 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.

Leadership Changes in the Company

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 The 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 sales increase from 10 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 The May Department Stores) in 13 of its 44 markets. In addition, Bon-Ton dealt with problems because it catered 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."

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 totaled $84.8 million, a 3.8 percent increase from the year before, despite the Blizzard of 1996. Comparable-store sales increased 4.4 percent. Although Heywood 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.

Struggles for the Company Continue

But by the third quarter of 1996, the company was continuing to struggle with more losses. Although the third-quarter reported loss was less than the same quarter a year prior, this was due to the opening of the four stores in New York that period. For the third quarter in 1996, the company reported a net loss of $242,000. Talk began to surface, suggesting the possible closing of another five stores in early 1997.

The beginning of 1997, however, reflected a company that was in a much better position. Changes in merchandising started off the year with the company focusing on the higher-end brands introduced earlier. A previous introduction of Lauren for Women was successful enough to invoke Bon-Ton to continue the "better" offerings, a plan they hoped would distinguish them from competitors J.C. Penney and Sears. Earnings for the fiscal year 1997 increased to 36 percent. "We are very pleased with our results for the year, particularly the significant increase in net income," said COO Michel Gleim in March of 1998. He credited the restructuring initiatives of the year before and the introduction of the new lines. Also contributing to the gain was the reduction in the number of vendors the company used and the elimination of a pension plan offered by one of the acquired companies. An additional store opening in New York went ahead as planned.

In May 1998 the company announced another stock offering of 4,600,000 shares. The proceeds were to be used for further expansion and upgrading of existing sites. Part of this expansion included a new store in Westfield, Massachusetts, making it the Bon-Ton Stores' first entry into the New England area. The move was part of the company's plan to move into smaller markets. Other expansion moves that year included upgrading existing stores, establishing stores as cornerstones of shopping malls, and general improvements. During this year the company also introduced a corporate philanthropy sector called the Bon-Ton Stores Foundation (BTSF). The foundation allocated funds to each store to be used for charitable donations and involvement. Funds were also issued to each store for local community projects.

Looking ahead to 1999 and the end of the century, the company planned more growth in the form of new stores, expansions, and yet more remodels. The plans would increase The Bon-Ton Stores' total square footage by 300,000 square feet and continue to focus on smaller markets. The overall desire for Bon-Ton was to expand to one million square feet in the next five years. Frank Tworecke was named vice chairman and chief merchandising officer at the end of 1999.

Economic Challenges Confront Bon-Ton Stores in New Era

The new century continued to bring challenges to Bon-Ton as it coped with less-than-desired sales profits. When the economy declined at the beginning of 2001, so did consumers' spending habits. Low cost and high value dominated consumers' interests during this period; low-priced retailers such as Wal-Mart reported increased sales during this time. To achieve the target net income for the year, the company had to eliminate 187 positions, resulting in 137 layoffs. Further trouble lay in the charges made by the New York State Attorney General that the company engaged in dishonest advertising practices. The Attorney General's Office alleged that "discounted" prices on some of the higher-end items such as jewelry and appliances were no lower than "regular" prices for these items. The company refuted the charges.

Despite a year of disappointing figures in 2001, Bon-Ton was able to report an increase in sales for the month of October. However, the terrorist attacks in the United States on September 11 troubled the economy and thus affected the retail clothing business. While October had looked good and November promising, the Christmas season slowed in sales so much that the company dropped their sales expectations to an all-time low. Still, while their competitors announced layoffs, Bon-Ton had no such plans.

Future Challenges

As the economy continued to struggle into 2002, Bon-Ton kept its focus on quality merchandising, expansion, and growth. The company had expanded to 73 stores in nine states. A new line of clothing, by Madison & Max, forged a new partnership with Federated Merchandising Group and was a hopeful prospect for the company. In January, Bon-Ton agreed to pay New York state a $100,000 fine to settle the misleading advertising charge; though they did not admit to any wrongdoing, the company agreed to restructure its advertising practices.

The company's plans for 2002 and beyond included balancing its merchandise between moderate and better goods; evangelizing the company's private brand; improving inventory management; increasing customer services; improving its technological infrastructure; and matching merchandise to each market. Because economic conditions had made it difficult to guess where consumers' dollars lay, Bon-Ton changed its strategy from an aggressive expansion plan to a focus on current merchandising and operations, while continuing to establish footholds in secondary markets.

Principal Subsidiaries:Adam, Meldrum & Anderson Co., Inc; The Bon-Ton National Corp.; The Bon-Ton Receivables Corp.; The Bon-Ton Stores of Lancaster, Inc.; The Bon-Ton Trade Corp.

Principal Competitors:Boscov's Stores; Federated Department Stores, Inc.; J.C. Penney; Elder-Beerman Stores Corporation; The May Department Stores Company; Kohl's Corporation; Sears, Roebuck and Co.

The Bon-Ton Stores, Inc. History

Company Perspectives:

Key Dates:

Company History:

Further Reading:

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