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Bon-Ton a victim of growth without strategy: The Whiteboard

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Richard Randall, founder and president of New Level Advisors
Richard Randall, founder and president of New Level Advisors - (Photo / )

The announcement that Bon-Ton is going bankrupt, closing its doors and being liquidated has unleashed nostalgia for the “good old days” here in York. It's sad, but not surprising, to see another historic retail chain fail.

Though I live in York, I don’t feel the same nostalgia for the Bon-Ton as some of my friends. That’s because I grew up in Reading. In Reading, the go-to historic department store of my youth was Pomeroy’s. Established in 1892, years before the Bon-Ton, Pomeroy’s was the place to go on Penn Street.

Pomeroy’s had everything you could imagine on its many floors and, of course, a tea room, a fixture of those great old urban department stores. When I watch movies like “A Christmas Story,” the department-store Christmas scenes bring back memories of Pomeroy’s.

My friends in Lancaster feel the same way about Watt & Shand, Lancaster’s version of the Bon-Ton or Pomeroy’s. Most Baby Boomers have similar memories of the hometown department store that was often the focus of smaller cities from the late 19th to middle-20th centuries.

Pomeroy’s and Watt & Shand have been gone for a long time. They were acquired by Bon-Ton in 1987 and 1992 respectively. They were targets of Bon-Ton’s growth strategy: entering new markets by either building new stores or acquiring existing businesses. That’s how Bon-Ton grew to 267 locations in a footprint extending to New England and out to the Midwest.

There is lesson about growth and strategy in Bon-Ton’s failure. There is no doubt that growth is important for most businesses. As fixed costs increase, it becomes necessary to increase sales volume or raise prices. But competition limits the ability to raise prices. Long-term, most businesses won’t thrive without sales growth.

However, sales growth is not the core purpose of strategy. Growth is just one of many possible business goals. The core purpose of a business strategy is to achieve and maintain a sustainable competitive advantage that supports all other objectives.

The Bon-Ton’s strategy of growth by acquisition and construction of new stores did not pass that test. The company did not become more competitive or more differentiated. It got bigger and more expensive to operate, and vulnerable to emerging and advantaged competitors and substitutes.

There was nothing at the Bon-Ton you couldn’t find at young-chic, low-priced Target; one-stop, lowest-price Walmart; high-end discounter TJ Maxx; or numerous brand-specific outlet malls. Each had a cost or differentiation advantage. Then there is the internet.

You can see the same trajectory at Sears. Sears grew dramatically by combining with Kmart and acquiring Lands’ End. Where was the competitive advantage? It was non-existent. Sears and Kmart were chasing the same in-store retail sales and losing to the same advantaged competitors.

The similarity between Bon-Ton and Sears doesn’t end there. Revenue losses and high fixed expenses put a squeeze on cash. The remedy is cutting expenses, reducing sales associates and maintenance budgets. The shopping experience degrades and traffic declines. Declining traffic is countered with ever-increasing discounts and promotions, causing revenue to fall further. It’s a death spiral.

Growth can be very alluring, but growth isn’t a strategy. Never forget that the thing that will keep your business thriving through thick and thin is a sustainable competitive advantage.

If your strategy already provides a sustainable competitive advantage, then the job is to watch out for new competitors or new substitutes for your products or services, and to adapt your strategy when needed. If you don’t have a sustainable competitive advantage, then the task is developing a strategy that will provide one.

Richard Randall is founder and president of management-consulting firm New Level Advisors in Springettsbury Township, York County. Email him at info@newleveladvisors.com.

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