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WIKI ANALYSIS
Bon-Ton Stores (NASDAQ: BONT) are department stores that sell clothing and accessories for women, men, and children. BONT stores are concentrated in the Northern U.S., with 278 stores in 23 states. Due to its domestic exposure, the firm is at risk to economic conditions in those regions, which are diversified by international competitors such as Macy's Inc. (M). Because of this, BONT made a profit in the past fiscal year for the first time in three years, and its success is sustained by the popularity of private label brands.
Business Overview
During the past fiscal year (2010), Bon-Ton stores made a profit for the first time in the past three years.[1] As U.S. consumer confidence increases, Bon-Ton should continue to see positive income into fiscal 2011.
Trends and Forces
Bon-Ton Reliant on Northern U.S. Economy
Bon-Ton stores are concentrated in the Northeastern, Midwestern and upper Great Plains states. If BONT fails to expand outside of the Northern U.S., it may face systemic risk factors not seen by competitors Macy's Inc. (M) and J.C. Penney (JCP), which have several stores outside of the Northern U.S.
Increases in Commodity Prices Will Raise Clothing Retailer Prices
Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.[2] [3] Natural disasters also severely damaged crops in many large cotton producer countries, such as China, India, and Pakistan. This led to decreases in cotton exports from these countries and increases in cotton imports as these countries sought to supplement their supply of cotton. [4][5] With limited cotton supplies and rising prices, retailers will either have to absorb these higher material costs, restructure the composition of their clothing to have less cotton, or pass these higher costs to its consumers. Higher clothing prices or lower quality clothing could discourage consumer spending, resulting in decreased net sales. However, adult or teen clothing retailers may not be too adversely affected as their clothing (which is usually 30-40% cotton based) has more flexibility in their composition and thus, costs. In addition, raising commodity prices in other areas will also raise costs for retailers. While premium price and established brands may be able to pass their higher costs to their consumers, value based companies may not fare as well and may suffer from lower profit margins.[2]
Competition
- Macy's Inc. (M) Macy's department stores sell similar products as Bon-Ton, but Macy's has stores located outside of the Northern U.S.
- Dillard's (DDS) Like BONT, Dillard's is a regional department store chain.
- Kohl's (KSS) Kohl's department stores sell more conservatively-priced apparel.
- J.C. Penney (JCP) Like Macy's, JCP sells similar products as BONT at locations all over the U.S.
References
- ↑ BONT 2010 10-k
- ↑ 2.0 2.1 http://seekingalpha.com/article/238731-more-evidence-of-inflation-retailers-report-escalating-commodity-prices
- ↑ Gap, Wal-Mart Clothing Costs Rise on ‘Terrifying’ Cotton Prices
- ↑ http://www.thegovmonitor.com/world_news/asia/recession-drought-hail-reduce-cotton-acreage-in-china-12256.html
- ↑ CNN Money - Cotton Shortage Could Inflate Clothing Prices
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