Over the past 2 decades, private equity firms have killed numerous U.S. retailers, shutting down stores and costing countless jobs. Leveraged buyouts, heavy debt loads, and asset stripping have left beloved retail brands in financial ruin.
According to the Private Equity Stakeholder Project, private equity firms were involved in 70% of the largest 2024 US corporate bankruptcies.
THE LATEST PRIVATE EQUITY CASUALTY: PARTY CITY
Party City‘s demise was driven by lenders imposing a surprise $50M reserve, effectively orchestrating a private equity-driven collapse. Per Party City’s restructuring financial filings, lenders justified the premium as compensation for “the risk they were taking” despite facing virtually no real risk. The maneuver ensured they could extract their money back with gains, forcing company failure. The resulting debt load became insurmountable.
ON THE HORIZON: THE CONTAINER STORE
Our prediction for a 2025 private equity casualty? The Container Store. The Container Store has just received private equity commitment for recapitalization to “improve business strategy and liquidity.” We all know what that really means.
OTHER NOTED RETAIL CASUALTIES CAUSED BY PRIVATE EQUITY GREED:
- Red Lobster: High debt and operational costs imposed by PE firm Golden Gate Capital.
- Big Lots: Nexus Capital leveraged Big Lots with debt and stripped valuable assets, leading to financial troubles.
- Sears and KMart: Multiple bankruptcies due to private equity mismanagement.
- 99 Cents Only: Leveraged buyout left the company with $675M debt.
- JOANN: Forced layoffs/closures by Leonard Green & Partners (the same private equity firm behind Party City).
- A&P and RadioShack: Forced by private equity firms to file for bankruptcy multiple times before closing.
- Envision Healthcare: Another victim of private equity strategies.
- Instant Brands: Instant Pot and Pyrex maker, also impacted by greedy private equity tactics.
KEY TAKEAWAY:
We must stop blaming employees and customers for the shortsightedness, asset harvesting, and greed of owners, stockholders, executives, and private equity firms. Private equity must be handled with bumpers and better governance. When debt is used to finance private equity self-interest, we all suffer. The “invisible hand of self-interest” allows the elite to leverage their advantages and accumulate more wealth while leaving others behind.
The retail trend for 2025 in this “Smash and Grab Economy“? GREED.
FINDING SOLUTIONS:
To mitigate the devastating impact of private equity on retail, we need:
- Interest Rate Caps: Implement caps on the interest rates that can be charged on leveraged loans to prevent excessive debt burdens.
- Limit on Dividend Recapitalizations: Restrict private equity firms from using debt to pay themselves large dividends, ensuring more funds remain in the business.
- Stronger Bankruptcy Protections: Enforce protections that prevent private equity firms from stripping assets and leaving companies without the means to recover.
- Enhanced Oversight: Increase oversight on private equity firms by regulatory bodies to ensure responsible management of their portfolio companies.
- Stakeholder Involvement: Encourage private equity firms to include employees and other stakeholders in decision-making processes to balance interests and promote long-term success.
These additional measures, along with stricter regulations, transparency, employee protections, and mandatory accountability, can create a more sustainable approach to private equity investments in the retail sector.
Image Credit: Mother Jones
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