BIG NEWS: Struggling retailer closes more stores in Chapter 11 bankruptcy
According to The Street, The retail sector has faced significant challenges since the onset of the COVID-19 pandemic, leading to widespread financial distress and numerous bankruptcy filings.
Factors Contributing to Retail Struggles
Retailers have grappled with store closures, supply chain disruptions, a shift in consumer preferences away from brick-and-mortar stores, and rising labor costs—all contributing to declining revenues.
Notable Bankruptcy Filings
One of the most significant bankruptcy events in the past year was Rite Aid’s Chapter 11 filing on October 15, 2023. The company aimed to reorganize its operations, reject underperforming store leases, and close struggling locations. Initially planning to close 154 stores, Rite Aid’s list grew to over 800 stores by August. The company successfully exited bankruptcy on September 3.
LL Flooring, a competitor of Home Depot, also filed for Chapter 11 bankruptcy on August 11, intending to sell its assets. However, after two sale proposals fell through, the company opted for liquidation, resulting in the closure of 430 stores. On September 5, LL Flooring reversed its decision after reaching a sale agreement with private equity firm F9 Investments, which agreed to purchase 219 stores and keep the company operational. Despite this, LL Flooring still closed 211 stores.
Big Lots Files for Chapter 11 Protection
In a similar move, discount home goods retailer Big Lots (BIG) filed for Chapter 11 protection on September 9 in the U.S. Bankruptcy Court for the District of Delaware. The company is seeking a sale of its assets to stalking-horse bidder Nexus Capital Management, with a bid of $760 million that includes $2.5 million in cash, debt payoff, and the assumption of liabilities.
The court has scheduled an auction for October 18 if multiple bidders submit offers, with a hearing to approve a proposed sale set for November 4. In its bankruptcy petition, Big Lots listed assets and liabilities between $1 billion and $10 billion. The company’s debts include $556.1 million in funded debt obligations, comprising a $433.6 million asset-based lending facility and a $122.5 million term loan.
Economic Headwinds
Big Lots cited several macroeconomic and industry-specific challenges as reasons for its bankruptcy filing. These included intense competition, disruptions caused by COVID-19, a high-interest rate environment, and an unreliable supply chain, all of which increased operating costs. Additionally, the company noted that elevated inflation has adversely affected its customers’ purchasing power, making them hesitant to buy larger discretionary items.
CEO Bruce Thorn acknowledged the company’s struggles in recent quarters, stating that the downturn in the economy has negatively impacted customer sentiment and profits. Big Lots experienced a 10.2% decline in sales, totaling $1.01 billion during the first quarter, along with a loss of $132.3 million.
Future Outlook for Big Lots
As the nation’s fourth-largest home goods retailer, with general operating revenues of $4.7 billion in 2023, Big Lots operated approximately 1,392 stores across 48 states before filing for Chapter 11 protection. On September 11, the company filed an interim order seeking approval for an initial store closing list of 344 locations nationwide.
This first list marked the beginning of Big Lots’ downsizing efforts. On September 20, the retailer submitted an additional list aiming to close 49 more stores across the country. As the bankruptcy case progresses, further lists of additional store closures are anticipated.
