Bon-Ton Said to See Pullback Reminiscent of Toys ‘R’ Us

(Bloomberg) -- Some of Bon-Ton Stores Inc.’s suppliers are scaling back shipments and asking to be paid sooner in order to protect themselves from potential losses in case the department-store chain falls short on its turnaround plans, according to people with knowledge of the matter.

The suppliers have insisted on getting paid with letters of credit or cash on delivery, which can be a drain on the company’s resources, said the people, who asked not to be named because the matter is private. The demands come just as the chain enters the key holiday-shopping season in the U.S.

“We maintain constructive relationships with our vendors,” Christine Hojnacki, a spokeswoman for the York, Pennsylvania-based company, said in a statement. “Our team has been working closely with all of our vendors, large and small, as we build inventory ahead of the holiday season.”

The company’s troubles with suppliers are similar to those faced by Toys “R” Us Inc. earlier this year, when vendors tightened their conditions as the toy retailer struggled with debt. Toys “R” Us filed for bankruptcy last month.

Bonds Drop

Bon-Ton’s $350 million of 8 percent second-lien bonds maturing in 2021 dropped 2.5 cents to trade at 32.6 cents on the dollar Friday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Bon-Ton, which operates 260 stores across 24 states, had hired PJT Partners and AlixPartners over the summer to explore options for dealing with its more than $1 billion debt load. In September, it announced an $18.9 million sale-and-leaseback transaction for a store in Roseville, Minnesota, that will boost liquidity in the short-term and buy breathing room.

Shares of the company have lost 75 percent of their value this year as the retailer contends with declining comparable-store sales and slower foot traffic. The weak performance led Chief Executive Officer Kathryn Bufano to step down earlier this year. She was replaced by Chief Operating Officer William Tracy.

Department store chains have been struggling to prop up sales in recent years as shoppers increasingly migrate to online competitors. Retailers including Macy’s Inc., J.C. Penny Co. and Sears Holdings Corp. have closed underperforming stores.

--With assistance from Jonathan Roeder Nick Turner and Lisa Wolfson

To contact the reporters on this story: Jodi Xu Klein in New York at jxu205@bloomberg.net, Lauren Coleman-Lochner in New York at llochner@bloomberg.net, Matt Townsend in New York at mtownsend9@bloomberg.net.

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net, Nick Turner at nturner7@bloomberg.net, James Crombie at jcrombie8@bloomberg.net, Nikolaj Gammeltoft, Faris Khan