A lot of hopes are riding on the new Southdale Herberger's -- both for store owner Bon-Ton and the venerable Edina mall.
There's a lot riding on the new Herberger's at Southdale Center.
Bon-Ton Stores Inc., its owner, is counting on the three-level, 126,000-square-foot store to reverse its fortunes. Sales at stores open for at least a year have sagged, including a 4.9 percent drop in November alone.
Milwaukee-based Bon-Ton has invested millions of dollars into building the state-of-the-art anchor store at Southdale, its sixth in the Twin Cities region with possibly more on the way. The department store boasts Internet kiosks, bright lighting and a large shoe department.
"Herberger's in the Minneapolis market are some of the company's best-performing stores," Bon-Ton spokeswoman Mary Kerr wrote in an e-mail. "We believe the addition of a Herberger's in Southdale Center will enhance the total shopping experience for our customers in this market."
But a struggling company opening an anchor store in a struggling mall at this time of year is a tall order. The company, which also owns Younkers, Carson Pirie Scott and Bergner's, decided to open the store right before the holiday shopping season, facing stiff competition from Macy's and J.C. Penney.
Retail executives say it might have been better for Herberger's to open earlier in the year, giving it time to settle before fighting for holiday sales, which can account for as much as two-thirds of annual revenue.
"Quite honestly, we would try to avoid ... opening later than October," said Dave Quel, president of ECCO USA. Last month, however, the European shoe retailer debuted at the Mall of America "because we couldn't pass up the opportunity" to open at such a high traffic location, Quel said.
But that's Mall of America.
Southdale has a different set of challenges that could hamper Bon-Ton's efforts. The nation's first indoor mall has been hurt in recent years by the loss of several retailers, including Mervyn's, B. Dalton Bookseller and Maggiano's Little Italy, and the perception that the mall is not safe for kids to hang out.
But local real estate experts say Southdale still operates in one of the better, higher-income markets in the Twin Cities. Plus Simon Property Group Inc., the mall's owner, is spending millions to renovate the property, including a redesigned food court, a children's play area, and redone entrances and hallways.
The real estate firm is also negotiating with Edina to secure another $4 million to $5 million in public subsidies to fund additional improvements. The package includes $1 million in tax increment financing (TIF) and a zero-interest loan. Simon is pushing the city to eventually forgive a portion of that loan.
Adding Herberger's to Southdale Center has also been a "catalyst" of sorts, with the city and Simon more eager to negotiate a financing deal to upgrade the mall, said Edina City Council Member Josh Sprague.
Southdale store manager Steve Griffin said the store is off to a good start, though he declined to disclose specific figures.
"We received a lot of customers that normally would not have shopped with us," Griffin said. "The three of us [Herberger's, Macy's, and J.C. Penney], will be able to drive a lot of business to Southdale Mall."
Ultimately, though, the fate of the Herberger's store and to a certain degree, Southdale, depends a great deal on the financial health of Bon-Ton.
Since March, Bon-Ton shares have plummeted about 80 percent to Thursday's close of $3.17. Moody's Investors Service recently downgraded Bon-Ton's debt outlook to "negative" from "stable," citing the company's "continued underperformance, measured by significant and persistent underperformance in same-store sales relative to department store industry peers."
In lowering its ratings outlook, Moody's said Bon-Ton's operating profit has fallen 37 percent this year because of declining same-store sales.
"It remains uncertain if the company's strategies to arrest these negative trends will be effective," the Moody's report said.
Council Member Sprague says he remains hopeful. Even if the mall somehow loses Herberger's, the mall's improvements would attract another top-notch retailer, he said.
Besides, "I don't see why Bon-Ton would invest so much capital in building a [best of class] department store if it was worried about its long-term financial health," Sprague said.
Thomas Lee • 612-673-4113