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Double Exposure: Retail workers hammered by combo crisis of pandemic and private equity

Executive Summary

Private equity has had a disastrous impact on the retail industry, driving dozens of firms into bankruptcy, shutting down tens of thousands of stores, and costing hundreds of thousands of jobs nationwide. These layoffs upend the already fragile economic security of the low-paid and often Black and Brown women who work in retail. Private equity retail shutdowns also undermine local economies when retailers large and small disappear, compromising the future of shopping centers and eroding local sales and business tax revenues.

Private equity is an especially predatory type of Wall Street investment firm that has taken over scores of national and regional retail chains. The private equity business model poses considerable risks to retailers and workers. Private equity relies on extractive financial engineering — including imposing high-debt loads from leveraged buyouts, wringing out value in fees and dividends, and stripping out real estate assets — that impose severe burdens on the retail takeover targets.

The private equity-owned retailers have often collapsed into bankruptcy as they are unable to service the large debt loads. While the private equity firms and executives walk away largely unscathed or even profiting from the deals that led to the retailer’s collapse, hundreds of thousands of women and people of color in frontline retail jobs have lost their livelihoods, often with no severance and no recourse.

The Coronavirus pandemic is exacerbating the headwinds challenging the brick-and-mortar retail industry, but the extractive private equity business model compromised the economic viability of retailers long before the pandemic. Changing consumer tastes and online and big box retail competition have created difficulties for the retail industry, but what has been called the “retail apocalypse” over the past few years has been driven largely by the collapse of private equity-owned retailers. Private equity-backed retailers have accounted for a substantial portion of retail bankruptcies before and after the pandemic.

These private equity-driven bankruptcies and jobs losses have hit every state. This analysis estimates state-level retail store job losses from 65 private equity-owned retailers where state store locations were identifiable at the time of private equity takeover and in February 2020, just before the pandemic, and found widespread job losses in every state.

The pandemic has added fuel to the already well-fed fire created by private equity greed and added new uncertainties for the millions of women and people of color who work at these retailers. The twin crisis has left these retailers uniquely ill-equipped to weather 2020’s economic downturns due to the mismanagement and heavy debt loads imposed by private equity firms.

Many private equity-owned retail chains that have disappeared over the past two decades caused devastating layoffs across the country — like the failures of Payless Shoes, Toys R Us, and the downsizing of Sears/Kmart. Other private equity-driven failures have destroyed popular regional chains like A&P (Northeast), Fred’s (Southeast and Midwest), Mervyn’s (West and Southwest), and Shopko (Midwest to West). Over one-third (26 of 65) of the chains covered in this analysis taken over since 2003 had disappeared by February 2020.

Key findings include:

• Private equity has been a driving force in retail bankruptcies: More than half (55.4 percent) of retail bankruptcies since 2015 were at private equity chains. Before the pandemic, from 2015 to 2019, nearly two-thirds (62.5 percent) of retail chains that entered bankruptcy were owned by private equity firms. During 2020, when the pandemic drove a broader retail downturn, nearly two out of five (39.3 percent) of bankruptcies were at private equity-owned chains.
• Private equity-owned retailers had slashed over half a million jobs before the pandemic: They cost nearly 542,000 jobs and closed nearly 18,000 stores by February 2020. Total job losses were substantial and widespread with more than 10,000 jobs lost in 20 states and more than 30,000 jobs lost in California, Florida, and New York (see Map 1 on page 3).
• These job losses disproportionately hit women and people of color: Low-wage retail jobs are often the only ones available to marginalized and oppressed communities and are predominantly held by women and people of color. An estimated 300,000 women, 101,000 Latinx, and 68,000 Black workers lost their jobs at private equity-owned retailers based on their share of the retail workforce.
• Private equity retail job destruction was nearly quadruple job creation: Although some private equity chains added jobs through mergers or expansions, these gains were swamped by the job losses (542,000 jobs lost compared to 145,500 jobs added).
• Private equity-owned retailers had net job losses of nearly 400,000: The private equity-driven retail failures and downsizing caused a net job loss of 396,300 by February 2020, even accounting for the more modest job growth at private equity retailers. Most states had substantial net private equity retail job losses. Seven states had private equity-owned retail net job losses of 20,000 workers (Florida, California, Ohio, New York, Pennsylvania, New Jersey, and Illinois).
• Precarious private equity-owned retailers employed over 215,000 workers as the pandemic broke: As the pandemic unfolded, twelve of the private equity-owned chains were at risk of collapse and some went into bankruptcy, such as J. Crew, Neiman Marcus, and Guitar Center. There were more than 215,000 workers at these 12 chains at heightened risk of job loss in 2020. Some of these workers may have already lost their jobs as retailers shutter locations or reorganize during the bankruptcy process. Thirteen states have more than 5,000 workers at vulnerable private equity-owned retailers — four states (California, Florida, North Carolina, and Texas) have more than 10,000 workers at these precarious retailers.

Private equity’s predatory practices have had a devastating impact on the retail industry, its workers, and the communities where these stores have disappeared. Today, private equity firms are poised to buy up even more chains as the pandemic wreaks havoc in the retail sector, deploying their amassed wealth to takeover troubled retailers at bargain basement prices.

Cover photo credit Amanda Marmor of United for Respect