![]() ![]() ![]() An analysis by the firm FTI Consulting found that two-thirds of the retailers that filed for Chapter 11 in 20 were backed by private equity. Since that analysis, a number of others have joined the list, including Nine West, Claire’s, and Gymboree. In April 2017, an analysis by Newsday found that of the 43 large retail or supermarket companies that had filed for bankruptcy since the start of 2015, more than 40 percent were owned by private-equity firms. For the spate of brands that have recently declared bankruptcy, their demise is as much a story about private equity’s avarice as it is about Amazon’s acumen. The so-called retail apocalypse felled roughly 7,000 stores and eliminated more than 50,000 jobs in 2017. Toys “R” Us is hardly the only retail operation to learn this lesson the hard way. Josh Kosman, the author of The Buyout of America, agrees: “All it takes is for earnings to stop rising and level off, or even decline a little bit, and you’re in a whole heap of trouble.” Two-thirds of the retailers that filed for Chapter 11 in 20 were backed by private equity. If it’s already carrying significant debt, it’s “really handcuffed,” he said. Thomas Paulson, the founder of the investment firm Inflection Capital Management, which focuses on companies that serve consumers, told me that when the retail landscape shifts, a company may need to make investments and even adapt its business model to stay afloat. Most retail operations try to keep their debt burden low to be ready for an inevitable downturn when you sell a product as discretionary as toys, a recession can hit particularly hard. By that point, it was facing the effects of the Great Recession. Customers liked the changes, but the company was able to revamp only 146 of its more than 1,500 stores by 2010. Shortly after the buyout, the company’s CEO implemented a plan to combine and remodel Toys “R” Us and Babies “R” Us locations. “It’s true that they couldn’t respond to Amazon,” Eileen Appelbaum, a co-director of the Center for Economic and Policy Research, told me. It had few resources left to upgrade its stores in order to compete with Target, or to spiff up its website in order to contend with Amazon. By 2007, according to Bloomberg, interest expense consumed 97 percent of the company’s operating profit. Saddled with its new debt, however, Toys “R” Us had less flexibility to innovate. The company generated $11.2 billion in sales in the 12 months before the deal in the 12 months before November 2017, it generated $11.1 billion. And though sales had slumped before the deal, they held relatively steady after it, even when the Great Recession hit. Immediately after the deal, it shouldered more than $5 billion in debt. Toys “R” Us had a debt load of $1.86 billion before it was bought out. ![]() Less attention was paid to the albatross that Bain, KKR, and Vornado had placed around the company’s neck. In its court filing, the company laid the blame at the feet of Amazon, Walmart, and Target, saying it “could not compete” when they priced toys so low. Observers pointed to the company’s struggle to fight off new competition. stores as part of its bankruptcy process, which began last September. In March, Toys “R” Us announced that it was liquidating all of its U.S. She was granted no severance-like the more than 30,000 other employees who are losing their job with the company. Reinhart’s store closed for good on April 3. (Bain and KKR declined to comment Vornado did not respond to requests for comment.) Employees had to pay more for fewer benefits, Reinhart recalled. The company eliminated positions, loading responsibilities onto other workers. “It changed the dynamic of how the store ran,” she said. But she noticed a difference after the private-equity firms Bain Capital and Kohlberg Kravis Roberts, along with the real-estate firm Vornado Realty Trust, took over Toys “R” Us in 2005. She got good benefits: health insurance, a 401(k). She stayed because the company treated her well, accommodating her schedule. She eventually became a human-resources manager and then a store supervisor. She applied and was offered a job on the spot. Twenty-nine years ago, Reinhart was a new mother buying diapers in a Toys “R” Us when she saw a now hiring sign. “I was almost speechless,” she told me recently. She was supervising the closing shift at the Babies “R” Us in Durham, North Carolina, when her manager gave her the news. A nn Marie Reinhart was one of the first people to learn that Toys “R” Us was shuttering her store. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |