For bargain hunters, Big Lots has long been a haven for furniture, home goods, and seasonal finds at rock-bottom prices. But in a cruel twist of fate, the discount retailer itself couldn’t withstand the rising tide of inflation. Last week, Big Lots filed for Chapter 11 bankruptcy, a move that will see hundreds of stores shutter their doors. Let’s delve deeper into how inflation and other key factors squeezed the life out of this once-thriving discount chain, forcing massive closures and a fight for survival.
Big Lots Files for Bankruptcy Amid Consumer Spending Slump
Big Lots announced on September 9th that it has filed for Chapter 11 bankruptcy protection. The company cited a decline in consumer spending and sluggish sales as primary factors contributing to its financial difficulties.
In an effort to restructure and secure a more stable future, Big Lots has entered into an agreement to sell its assets and ongoing operations to private equity firm Nexus Capital Management.
The Columbus, Ohio-based retailer acknowledged that high inflation and interest rates have significantly impacted its business. Consumers have become more cautious about their spending, particularly on home and seasonal products, which represent a substantial portion of Big Lots’ revenue.
Citing FactSet as a source, AP News reported that sales at stores open at least a year, a key indicator of a retailer’s health, have been on a downward trend for the past nine quarters.
While Big Lots stated that its performance has been showing signs of improvement, its board of directors concluded that the proposed sale to Nexus was the most advantageous path forward for the company.
Throughout the court-supervised sale process, Big Lots will continue to operate its stores and online platform, allowing customers to purchase goods as usual.
“The actions we are taking today will provide us with a fresh start under new ownership that shares our vision and offers financial stability,” said Bruce Thorn, President and CEO of Big Lots, according to AP News. “We will also be able to optimize our operational footprint, accelerate performance improvements, and reaffirm our commitment to delivering exceptional value to our customers.”
Nexus Capital will serve as the “stalking horse” bidder in the auction, meaning it will set the initial bidding price. However, other potential buyers may submit higher offers or alternative proposals. If Nexus emerges as the winning bidder, the deal is expected to close in the fourth quarter.
Big Lots Plans to Close Several Stores Prior to Bankruptcy Filing
Before filing for bankruptcy, Big Lots already significantly increased its plans to close stores, aiming to shutter as many as over 300 locations. This decision came in response to a decline in consumer spending and financial pressures.
In its most recent earnings report, the company announced a 10% drop in sales and a $205 million loss for the first quarter of 2024. As a result, Big Lots initially planned to close up to 40 stores. However, due to ongoing financial challenges, it announced in August that its closure plan now includes 315 stores. While a specific list of stores slated for closure has not been released, Big Lots has advertised closing sales at hundreds of its 1,388 stores on its website.
In a statement to CNN, Big Lots explained that it is taking proactive steps to improve efficiency and is conducting a thorough review of its store footprint. The goal is to ensure that its operations are optimally aligned with customer needs and business objectives.
A company spokesperson emphasized that while a majority of Big Lots stores are profitable, the decision to close underperforming locations was a difficult one. “We are confident that the steps we are taking will best position the company for the future as we return to our roots, focus on owning the bargain space, and deliver unmistakable value to our customers,” the rep for Big Lots said.
Big Lots Secures $550 Million in Bankruptcy Financing
On September 11th, just two days after filing for bankruptcy, Big Lots received court approval for $550 million in debtor-in-possession financing, providing a lifeline as it navigates the bankruptcy process. The company also secured up to an additional $157.5 million in new-term loans, according to Retail Dive.
“With the court relief we have received today and the support of our lenders, we look forward to moving through this process and emerging as a stronger, more efficient company, well-positioned to serve our customers,” CEO Bruce Thorn said in a statement.
The financing, combined with cash generated from ongoing operations, is expected to provide sufficient liquidity to maintain normal business activities, including paying employees and vendors.
Big Lots remains open for business and has reiterated its commitment to staying operational beyond the bankruptcy process.