Discount retailer Big Lots has filed for Chapter 11 bankruptcy, marking a shocking decline for the company that has served as a staple for bargain hunters in the U.S. for over five decades.
The retailer, which previously warned of “substantial doubt” regarding its survival, announced private equity firm Nexus Capital Management will acquire most of its stores and operations as part of its restructuring efforts.
Big Lots’ Bankruptcy Filing and New Ownership
In its Chapter 11 filing, Big Lots assured customers its stores and online platform would remain operational throughout the bankruptcy proceedings.
Nexus Capital Management is set to acquire “substantially all” of Big Lots’ assets. The acquisition is expected to be finalized later this year, barring any competing offers.
Big Lots CEO Bruce Thorn said:
“The actions we are taking today will enable us to move forward with new owners who believe in our business and provide financial stability.”
He added the company aims to “optimize [its] operational footprint, accelerate improvement in performance, and deliver on [its] promise to be the leader in extreme value.”
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Economic Factors Behind the Bankruptcy
Several economic challenges contributed to Big Lots’ bankruptcy filing, with inflation and rising interest rates at the forefront. These factors have dramatically shifted consumer behavior, forcing many to reevaluate their spending habits.
A statement from the company said:
“Customers are seeking out value“but not necessarily lower costs.”
This shift has hurt Big Lots, which focuses heavily on home and seasonal products, sectors where consumer discretionary spending has significantly declined.
Unlike major players like Walmart and Amazon, which have seen sales increase, Big Lots has struggled to capture its customers’ interest. The company cited that economic trends were especially damaging to their revenue.
Big Lots is not alone in facing these challenges. Retailers across the U.S. are grappling with similar issues, with many consumers prioritizing essential purchases over non-essentials like home decor, furniture, and seasonal items.
Potential Store Closures and Job Losses
As part of its restructuring, Big Lots is already closing approximately 300 of its 1,400 U.S. stores.
No additional closures were announced as part of Monday’s filing. However, the company warned further shutdowns may be necessary to ensure operational efficiency.
Its statement said:
“We may need to close certain locations to ensure that our business operates efficiently and we can continue serving our customers.”
The company has secured $707.5 million in financing to keep its operations running. This will also ensure employees and vendors are paid during the bankruptcy process.
Nexus Capital Management as Stalking Horse Bidder
Nexus Capital Management, a private equity firm, has been named as the bidder, setting the stage for its acquisition of Big Lots unless a higher bid emerges.
However, according to Sarah Foss, global head of legal and restructuring for Debtwire, a publication that monitors leveraged markets, it is “unlikely that another bidder will emerge” due to the limited sales timeline.
Chapter 11 gives Big Lots the opportunity to renegotiate and reject burdensome leases and contracts. This is a necessary move for the retailer.
Foss said:
“It gives a debtor leverage in negotiations and allows a company to renegotiate and reject burdensome leases and contracts.”
This option is especially valuable for retail companies that often face high operating costs due to expensive leases.
The Larger Retail Landscape: A Sector in Crisis
Big Lots joins a growing list of well-known retailers that have encountered financial struggles.
Last week, LL Flooring, another prominent name in the retail sector, announced it could not find a buyer and will be shutting down after more than 30 years in business.
The retail industry has been shaken by shifts in consumer behavior, rising operational costs, and increasing competition from e-commerce giants.
As more traditional brick-and-mortar retailers struggle to adapt, the sector could see additional bankruptcies and consolidations in the coming months.
Outlook for Big Lots and Retail in a Changing Economy
Big Lots’ bankruptcy filing is a clear indicator of the challenges faced by discount retailers in an evolving market. With the acquisition by Nexus Capital Management, the retailer has a chance to stabilize its operations and refocus its strategy.
However, with potential store closures on the horizon and ongoing economic uncertainty, it remains to be seen how successful the restructuring will be in the long run.
As retail continues to evolve, companies like Big Lots must find new ways to meet customer demands while navigating the challenges posed by inflation, shifting consumer preferences, and rising competition from e-commerce giants.
