Lessons From Bon-Ton’s Plan To Avoid Liquidation

YORK, PA–Earlier this month Washington Prime Group, Namdar Realty Group and DW Partners had a plan to keep The Bon-Ton chain of department stores a going concern  by putting in their own bid to save the retailer from bankruptcy. Bon-ton got behind the plan as well and urged the bankruptcy judge  to allow it to pay $500,000 in due diligence costs to the partners so they could move their letter of intent to an actual bid. The judge ruled against this move and this week, the department store went to auction where it was promptly snapped up by bidders intent on liquidation.

So closes another chapter in the retail industry’s ongoing struggles. So far this year retailers have announced 77 million square feet of closures, according to CoStar Group (per Bloomberg), compared with the 105 million square feet that closed for all of last year. Not all of these are the result of bankruptcies, of course, but it is clear that retail’s shakeout shows no sign of abating any time soon.

Bon-Ton’s story, though, had a twist: the retail landlords tried to save it. We have seen this play before in 2016 when Simon Property Group and GGP unexpectedly joined forces to save a major tenant, Aeropostale, from liquidating. The two REITs bid $240 million for the teen apparel retailer to keep it a going concern in their malls.

A Model That Might Have Worked

Another model — one that the Bon-Ton partners more likely would have followed — is that of Seritage Growth Properties, a 2015 retail spinoff from Sears Holding Co., David Berliner, leader of BDO’s Restructuring and Turnaround services practice, tells GlobeSt.com. Under a master lease, it has 230 wholly-owned properties leased to Sears Holdings under either the Sears or Kmart brand. It also own stakes in 28 additional properties through joint venture investments with GGP, Simon Property Group and Macerich, which are also master leased to Sears Holdings.

What Seritage has been doing is converting some of these stores to other uses or finding higher-paying tenants for the property, Berliner says. “They can double or triple the rent they were getting for the same space and also bring some new vitality to the shopping centers.”

Getting The Timing Right

Timing is everything, though, with this strategy, he continues. If Sears were to suddenly liquidate everything for instance, Seritage probably wouldn’t make it. But Sears is still plugging away, which has given Seritage the time needed to reposition the real estate. “I’ve seen some with a Whole Foods on the first level and other uses on the second and third level,” Berliner says. Seritage has converted other former Sears stores to movie theaters and in other cases, demolished some properties, he adds.

Time, or perhaps better put, breathing space, is what Berliner believes the partners seeking to buy Bon-Ton were hoping to get with the retailer in order to put a strategy like the one Seritage is using in place — that is, take over the stores, close the ones that were bleeding and repositions or lease up the others. “They just needed time to figure out which ones could be saved or sold off to other retailers,” Berliner says.

Landlords Don’t Know The Business Of Retail

But Berliner ends with a cautionary note: this is not a model that retail owners are likely to immediately try whenever a retail store fails — or even necessarily should. In the case of Aeropostale’s rescue, Simon and GGP weren’t swooping in to salvage a company that had been losing money for several years. Rather it was a company whose costs may have been too high and had made some missteps with their products, Berliner says. “Landlords are looking for strong players, for new and upcoming brands that are looking to expand because there are always winners and losers in retail,” Berliner says. “The winners will always be able to come in and figure out how to succeed, even in this crazy environment.”

Landlords, though — not so much, which is why they are landlords and not retailers.