retail news in context, analysis with attitude

The Washington Post has a story about how “more than 1.3 million Americans have lost their jobs in the past decade as a result of private equity ownership in retail, according to a report released Wednesday. That includes 600,000 retail workers, as well as 728,000 employees in related industries.”

The sector, according to the report, “added more than 1 million jobs during that period.” But because of private equity ownership, the bottom line has been a net loss.

The Post story says:

• “Women and people of color have been disproportionately affected by the layoffs as debt-ridden retailers closed thousands of stores, according to the report by six progressive nonprofit organizations and workers’ advocacy groups, including Americans for Financial Reform and the Center for Popular Democracy.”

• “Ten of the 14 largest retail bankruptcies since 2012 have been at private-equity-owned companies, such as Payless ShoeSource and Claire’s, according to the study.”

• “Critics say large debt loads from leveraged buyouts make it difficult for otherwise profitable retailers to adapt to industry changes. When Toys R Us filed for bankruptcy in 2017, court documents showed that it had been paying $400 million a year toward its debt, often at the expense of profitability.

According to the story, “Private equity firms and hedge funds have been aggressively buying up retailers since the mid-2000s, when a booming economy and low interest rates made leveraged buyouts particularly attractive. The firms pooled money — often from pension funds, wealthy investors and financial firms — and relied on large swaths of debt to acquire companies like Mervyn’s and Linens ‘n Things, with the goal of turning them around.

“In practice, though, they routinely sold off real estate holdings, cut workers’ pay and benefits, and jettisoned jobs to turn a quick profit for investors, according to Heather Slavkin Corzo, a senior fellow at Americans for Financial Reform and the director of capital markets policy for the AFL-CIO, a federation of labor unions.”

As with all things these days, there is a political angle. The Post notes that “the study comes a week after Sen. Elizabeth Warren (D-Mass.) introduced legislation that would stop private equity firms from gutting companies and loading them with debt. Her plan would require such firms to shoulder those liabilities themselves instead of foisting them onto their acquisitions.”

Not everybody, the Post points out, agrees with the report’s conclusions: “Industry groups say private equity firms make significant investments to help businesses grow, and that their returns help support pension funds for teachers, first responders and other government workers. They say such factors as increased competition and the shift to online shopping also have contributed to retail bankruptcies. ‘This report is biased and is focused on a sector that experienced tremendous disruption over the past decade,’ said Drew Maloney, president of the American Investment Council, which lobbies on behalf of the industry. ‘Private equity has a clear record of supporting millions of jobs across all sectors and investing in communities across America’.”

You can read the full story here.
KC's View:
I’m sure that there are plenty of examples of how private equity has saved jobs and companies, but there also are tons of examples of the opposite - of how these organizations bought retailers but had no idea of what goes into retailing, and they promptly made decisions that undermined values and value propositions that had long been nurtured, and in doing so severed relationships between these retailers and their customers.

It is ironic that this report came out as Treasury Secretary Steve Mnuchin - a former investment banker and hedge fund guy who is accused in a lawsuit of being part of the cabal that bought Sears and then stripped it of its value - was accusing Amazon of destroying the retail business (and arguing that Walmart wasn’t so bad).

(I’d love to know the last time Mnuchin was in a Walmart as a customer. Hell, I’d love to know the last time he was in a Sears as a customer.)