- Tops Markets wants approval to close “a few” underperforming stores as part of its Chapter 11 bankruptcy restructuring, The Buffalo News reported.
- Almost one in eight of the Tops store are a drain on the company’s cash flow, according to previous documents filed with the Bankruptcy Court. Burt Flickinger, managing director of Strategic Resource Group in New York, told The Buffalo News that “a few” could mean as many as 18 to 24 of its 174 supermarkets.
- The chain was noncommittal about its plans. “No decisions have been made about potential store closings,” Tops spokeswoman Kathy Romanowski told the newspaper.
Tops Markets has reached the point in its bankruptcy proceedings where it must decide which stores to keep and which to close or possibly sell. Two dozen stores is not an insignificant number, given the chain’s total of 169 corporate and five franchised locations. Tops has asked the court to hold a hearing about the matter on May 10, The Buffalo News wrote.
“The vast majority of [Tops’] stores are already sustainable profit centers, show strong sales numbers, cover important regions, are run by talented managers, maintain sustainable cost structures, or offer the possibility for long-term positive EBITDA trends. A few of the debtors’ stores have, however, consistently underperformed,” according to the motion, quoted by Winsight Grocery Business.
Among the factors contributing to the poor performance of some stores: high rents that have squeezed the already narrow profit margins, locations in markets oversaturated with supermarkets, and building sizes too big for Tops needs, The Buffalo News noted.
Ever since Tops filed for bankruptcy in February, Frank Curci, chief executive officer, has maintained the company has a core strength and intends to invest more to “create an even more exceptional shopping experience for our customers,” to compete more effectively in a challenging marketplace. But in its court filing, chief restructuring officer Michael Buenzow said Morgan Stanley’s acquisition of the company in 2007 from Ahold left it with an “unsustainable amount of debt on its balance sheet” that it could not overcome. Meanwhile prices on some food items, like meat and dairy products, have fallen.
The competition facing Tops are a familiar cast: Walmart, Aldi, Dollar General, Whole Foods, the almost legendary presence of Wegmans and the looming specter of Amazon’s online food sales. Among these retailers, Tops is seen as the least differentiated, and unlike some of the others, it is unionized with steep pension expenses, said The New York Times. It's unclear how the retailer will be able to fight back, let alone retire its debt.
Regardless of what happens in terms of restructuring and closing the stores, planned bonuses are raising eyebrows. Curci may receive a $1.3 million bonus he might receive if the store exceeds its financial targets, The Buffalo News reported. The five highest-ranking executives at the chain could receive a total of $3.6 million in bonuses. The chief restructuring officer told the newspaper that such bonuses are essential to keeping top employees at the retailer, but the union has said it will “vigorously object” to the bonus plan.
Tops has also sought to reduce payments to union pensions and reduce benefits, Supermarket News reported. Court filings indicate pensions are underfunded by $393 million, receiving a "critical" designation from the Department of Labor — so benefits under the plan can be reduced.
What will Tops look like after Chapter 11? Probably much the same in the beginning, but it will likely undertake more initiatives like its partnership for in-store meal kits with Chef’d and for e-commerce with Instacart. While new stores are unlikely to be built in the near term, remodelings and innovative merchandising efforts will help the chain survive.
However, the personnel issues may drive union employees out. While restructuring consultants say the large bonuses are necessary to keep top brass from walking away, those payments — along with closed stores and reduced pensions — could leave workers unhappy. And even if the books are in order, stores are remodeled and partnerships are inked, losing experienced stockers, cashiers and inventory specialists could be a major blow for the company.