In high school, when I took my girlfriend (now my wife) to the Christmas Ball, I bought my clothes at the nicer of the two clothiers in town: Herberger's. The other — JC Penny — is where I bought most of my regular school clothes. That was life in a small town in the early 1990's. Still is.

At least until the last year. It was thirteen months ago that we found out that the JC Penney was going to close. It had moved from its old location in the East Brainerd Mall (where it had moved from its original location in downtown Brainerd) to the Highway 371 bypass strip — the "classic case" of transportation investment success, according to one of our most respected policy advocates — but even that wasn't enough to save it.

Last week we found out we were going to lose our other big store. With the forced liquidation of Bon-Ton, parent company of Herberger's, the last major retailer in my hometown is gone. Here's how the local paper described it:

Just this week, the lakes area learned it is losing its second major department store with Herberger's leaving and J.C. Penney already gone. It represents the last large department store in Brainerd and highlights a real and major shift in the American consumer. Something that wouldn't have been considered not that long ago when passing the Herberger's cosmetics counter or browsing through row after row of merchandise.

Forced Liquidation

I haven't studied the books at Bon-Ton because I have no intention of owning anything in the American retail space at the moment, but I did take a few minutes to look over some of their recent financials. It's ugly.

They have nearly a billion dollars in debt, the interest of which overwhelms the profit they are generating off their operations. This is true even at today's ridiculously low interest rates. In a normal interest rate environment, this debt hog would have been slain quite a while ago. As it sits, enough was done to help it limp along, despite having every indication that it would never be able to claw its way out of this. A debt rollover at the end of last year was probably a chance for creditors to buy time to unload the debt onto some pension fund or foreign sucker, er... investor.

At the end of 2016, the company had $35 million in equity securing $1.5 billion in liabilities, a leverage ratio of 1:43. Ha! And that got worse by the end of last year, when total liabilities exceeded equity and the company was forced into bankruptcy. Despite the fact that the company would operate profitably if the debt were wiped out, the creditors are going to secure what they can and sell off the parts that have some value. Getting out of the lease they have with my little town mall will be a simple formality.

Efficient, but Fragile

I remember when Herberger's opened. In fact, I remember when the mall itself opened. It was a big deal. Sure, there was whining about the destruction of the downtown but, come on, those places really weren't that competitive in today's market. Herberger's and national retailers like them were able to operate much more efficiently and, as the story goes, pass those savings on to consumers. The message to the community was simple: better selection, better prices and everything would be shiny and new. We embraced it.