Distressed home improvement retailer plans Chapter 11 bankruptcy
According to THE STREET, The home improvement retail industry is grappling with a range of economic pressures affecting various sectors, including furniture, home appliances, consumer electronics, and real estate. Key issues include rising interest rates, persistent price inflation, and declining sales.
The real estate market has been particularly hard-hit, with 30-year fixed-rate mortgages climbing from a record low of 2.65% in January 2021 to nearly 8% by October 2023, with a rate around 7% as of July 5. Inflation, which began surging in mid-2021, reached a peak year-over-year change of 9.1% in June 2022. In response, the Federal Reserve increased interest rates 11 times through July 2023 to combat inflation.
Since the COVID-19 pandemic, the real estate market has experienced extreme inflation, with U.S. house prices skyrocketing by 47% since 2020, according to the Case-Schiller National Home Price Index in May. Such dramatic price increases can significantly reduce the number of potential homebuyers.
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Impact on Home Improvement and Related Sectors
Higher interest rates and inflation can deter consumers from making purchases. When high interest rates and inflated prices prevent consumers from buying homes, related businesses such as furniture, home appliances, consumer electronics, and home improvement retailers also suffer.
Kelly-Moore Paints Closes Amid Legal and Financial Struggles
In addition to economic factors, legal troubles can also severely impact a company. Iconic paint retailer Kelly-Moore Paints shut down all 157 of its retail locations and furloughed around 700 employees in January 2024. This closure followed a $600 million settlement in asbestos litigation claims. The Irving, Texas-based company, established in 1946, decided against filing for Chapter 11 bankruptcy or Chapter 7 liquidation due to its inability to fund continued operations and future asbestos claims.
LL Flooring Considers Bankruptcy Filing
Home improvement retailer LL Flooring is exploring a Chapter 11 bankruptcy filing to reorganize its business, according to Bloomberg sources. The company’s shares dropped approximately 22.5% on July 3 following reports of its potential bankruptcy. LL Flooring has struggled with accessing cash and has seen a 21.7% decline in first-quarter sales, down to $188.5 million.
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Discussions about the bankruptcy filing are not yet finalized, and the company’s plans could change. LL Flooring, founded in 1994 by building contractor Tom Sullivan as Lumber Liquidators, rebranded as LL Flooring Holdings on January 1, 2022, after settling securities fraud allegations for $33 million in 2021. Despite these challenges, LL Flooring remains the top U.S. hardwood flooring retailer, with over 400 locations across 47 states as of April 2024.
