retail news in context, analysis with attitude

Tops Friendly Markets, based in western New York State, and Winn-Dixie, an iconic name in southern US food retailing, both are reported to be preparing for possible bankruptcy filings.

Quartz explains their problems this way: “Both companies are wheezing under heavy debt loads after being acquired by private equity firms.”

According to Bloomberg, “Bi-Lo LLC, the company behind the Winn-Dixie chain, is preparing for a filing as soon as March, according to the people, who asked not to be identified because the process isn’t public … As part of the upheaval, Bi-Lo is planning to shut almost 200 stores -- either before or after its filing -- one person said. The business, which went bankrupt in previous incarnations in 2005 and 2009, may still find a way to restructure its debt out of court.” Bi-Lo is said to be “laboring under more than $1 billion in debt following its 2005 buyout by Lone Star Funds.”

Meanwhile, Bloomberg writes, Tops “could potentially seek court protection from creditors as soon as this month, people familiar with that situation said … Buyouts by Morgan Stanley -- and later by the company’s own managers -- left Tops straining to keep up with debt payments. And the industry’s intense competition made it hard to offset the burden by raising prices … A 2017 report from Reuters said the supermarket chain had a $723 million debt load.”
KC's View:
Even if these companies manage to avoid bankruptcy, or get through it and are able to do something about their debt, that does not change the fact that they will continue to face extraordinarily challenging times and may be disadvantaged in their ability to deal with competitive issues.

In part, they are disadvantaged by some basic realities. They are of a size, and have ownership structures, that means their access to capital is limited. They feel like they have to make choices between investing in e-commerce initiatives and investing in bricks-and-mortar stores. Money is likely to get more expensive if inflation rears its head. And, they are faced with increasingly tough competition from all sides.

But, I think, they may also be disadvantaged by varying degrees of innovative inertia. I’m not saying that they don’t want to be innovative, or are unwilling to do things differently. But they may have cultures that are rooted in the past, and lack the horses to drive them to make the structural and cultural adjustments necessary to be truly different in 2018 and beyond.

The larger question, I think, is how many other retail chains have these same sorts of problems, and will be facing the same competitive issues in the short term. More than a few, I believe.