Essential retailer closes more stores in Chapter 11 bankruptcy

According to The Street, Filing for Chapter 11 bankruptcy can offer a company a chance to restructure and regain stability. However, the process places the company under the scrutiny of the court, its lenders, and creditors. While a company may enter Chapter 11 with a clear plan, any objections from these parties can quickly derail its efforts, leading to unforeseen complications.

Red Lobster’s Struggle with Chapter 11

A recent example of this is Red Lobster’s bankruptcy filing. The restaurant chain sought to close locations deemed unprofitable and renegotiate leases at over 100 other sites. The aim was to secure lower monthly rents and address back rent issues. However, many landlords were unwilling to accept the chain’s offers to settle old debts for new lease terms. As a result, Red Lobster will likely have to close more locations than initially anticipated, impacting its overall size and reach under new ownership.

Rite Aid Faces Financial Strain and Store Closures

Rite Aid, which filed for Chapter 11 bankruptcy protection in October 2023, planned to “optimize” its store footprint, a euphemism for closing hundreds of locations. The company stated that it would continue to evaluate and close underperforming stores as part of its restructuring process to reduce rent expenses and improve financial performance.

Also read: BIG UPDATE: Costco makes major change to stop membership sharing

While Rite Aid did not specify the exact number of store closures, industry expert Garrick Brown from Gallelli Real Estate predicted a worst-case scenario of up to 700 store closures. This would represent nearly one-third of Rite Aid’s total 2,215 stores. As of now, Rite Aid has already closed 694 stores, coming very close to that estimate.

Additional Setbacks: Data Breach at Rite Aid

As if the store closures weren’t enough, Rite Aid also faced a data breach, further complicating its situation. On June 6, 2024, an unknown third party gained unauthorized access to business systems by impersonating an employee. Although the company detected and addressed the breach within 12 hours, it still had to report the incident to law enforcement and regulators.

Also read: Johnson & Johnson Subsidiary to Declare Bankruptcy, Adds $1.1B to Talc Settlement

Rite Aid disclosed that the breach involved data related to purchases or attempted purchases of retail products between June 6, 2017, and July 30, 2018. Compromised information included customer names, addresses, dates of birth, and government-issued ID numbers. However, the breach did not affect social security numbers, financial information, or patient data. The company has mailed notifications to affected customers, detailing the compromised information.

As Rite Aid navigates its Chapter 11 restructuring, these additional challenges highlight the complex and often unpredictable nature of bankruptcy proceedings.