- Tops Markets said late last week it has received court approval to close 10 underperforming stores, according to a news release. The stores were identified through a comprehensive review as the company entered into financial restructuring following its Chapter 11 filing in February. The locations will close by the end of November.
- Tops also announced it has received court approval for a final agreement with the United Food & Commercial Workers union, which represents 85% of its employees. The agreement includes a new pension program that phases out the company’s previously underfunded plan and will result in lower payments for Tops.
- On Friday, Tops released a restructuring plan that calls for a debt-for-equity swap to current investors and plans to reduce the company’s $715 million debt load by more than half.
The pension and store-closure approvals represent two of the biggest hurdles Tops faced in its financial restructuring process. The company now says it hopes to emerge from bankruptcy protection in as little as three months.
Tops’ pension fund with the UFCW was underfunded by $390 million and classified as “critical” by regulators because its holdings could only cover slightly more than 50% of the scheduled payments, according to The Buffalo News. Under the new agreement, court documents show that pension payments will go down for participants, but Tops will establish a new 401(k) plan that it will seed with $12 million, plus another $17 million over the next 21 months.
Tops has also negotiated lower lease payments for some of its stores, according to the publication. Back in April, company filings estimated that one out of every eight stores the company operated was a drain on cash flow. But better lease terms seem to have brought as many as half of those locations back from the brink. CEO Frank Curci said in a statement that underperforming stores are outliers for the company.
“The vast majority of our stores are profitable and we are seeing strong customer support continue to drive growth in these locations,” he said.
Tops still faces an uphill climb in the months and years ahead. Although the company will reduce its debt load by more than $400 million under the new restructuring plan, it still faces interest payments of around $55 million. As court documents and The Buffalo News noted, Tops expects to lose $13 million next year and break even in 2020 and 2021.
This doesn’t leave the company much room for error as it plots its comeback. Tops is remodeling stores and investing in its loyalty programs and promotions, while also beefing up its e-commerce presence, with 125 of its 169 stores now offering delivery through Instacart. But it goes head-to-head against one of the toughest competitors in the business — Wegmans — while also fighting the likes of Walmart, Aldi and Whole Foods.
Tops’ struggles are largely due to a period of mismanagement that ended several years ago. But the company also embodies many of the hardships traditional grocers face in a fragmenting and intensely competitive industry.