Big Lots, the popular discount retailer, has filed for Chapter 11 bankruptcy protection in Delaware, citing financial pressures exacerbated by changing economic conditions. The company reported liabilities and assets in the range of $1 billion to $10 billion, according to court filings. To support its operations during the bankruptcy process, Big Lots has secured $707.5 million in commitments, including $35 million in new financing from its lenders.
As part of the restructuring, Big Lots has entered into a stalking horse agreement with Nexus Capital Management, which has offered to acquire the majority of the retailer’s assets for $620 million. If Nexus emerges as the winning bidder, the deal is expected to close in the fourth quarter of this year.
CEO Bruce Thorn expressed optimism that Chapter 11 will provide the financial stability needed to transition the company to new ownership while optimizing its operations. Despite efforts to improve sales and long-term performance, Big Lots has struggled with reduced consumer spending on its core home and seasonal products.
“The bankruptcy of Big Lots is the inevitable result of the financial strain caused by declining sales and high debt levels,” said Neil Saunders, managing director of GlobalData. “These factors have created an imbalance that made normal operations unsustainable.”
In 2023, Big Lots generated operating revenues of approximately $4.7 billion. However, the company faced a significant decline in the first quarter, with net sales dropping by 10.2% to $1 billion compared to the previous year. The company’s debt stood at $556.1 million as of its bankruptcy filing.
Big Lots began implementing cost-cutting measures last year, including the sale-leaseback of 22 stores and a distribution center in California. Earlier this year, the company took out a $200 million term loan secured by its corporate headquarters in Ohio and its working capital assets. In a recent move, Big Lots amended its credit terms, allowing for the closure of up to 315 underperforming stores.
Thorn noted that while the majority of stores remain profitable, the company intends to streamline its operations by reducing its footprint. “We aim to ensure operational efficiency and better serve our customers by optimizing our store fleet in an orderly fashion,” he said.
Founded in 1967, Big Lots grew through acquisitions and expansions, eventually consolidating its stores under the Big Lots name in 2001. The company currently employs 27,700 people and operates around 1,300 stores across 48 states, in addition to running an e-commerce platform and five distribution centers.
Between 2013 and 2018, Big Lots shifted its focus away from closeout products, which led to higher prices and decreased customer traffic. Under new leadership in 2018 and 2019, the company returned to its bargain-focused roots. Most recently, Big Lots unveiled a turnaround plan aimed at increasing its bargain and closeout products to 75% of total sales by the end of the year, with extreme bargains expected to account for 50% of sales.
What happens to employees
During Chapter 11 bankruptcy proceedings, the future of Big Lots’ employees will depend on several factors, including the outcome of the sale process, the restructuring plan, and how the company navigates its financial challenges. Here are some key potential outcomes for Big Lots employees:
1. Continued Employment
- Temporary Stability: Initially, Big Lots has stated that it aims to continue normal operations during the bankruptcy process, meaning most employees will likely continue working as usual, at least in the short term. The company has filed motions to continue paying wages and benefits, which are typically approved to maintain business continuity.
- Potential for Retention: If a buyer like Nexus Capital Management successfully acquires the company, many employees could be retained to ensure ongoing operations, especially in profitable locations.
2. Store Closures and Layoffs
- Closure of Underperforming Stores: Big Lots has already indicated that it plans to close up to 315 underperforming stores. Employees at these locations will likely face layoffs as part of the company’s cost-cutting measures.
- Reduced Workforce: If the new ownership or restructuring involves downsizing operations, there could be broader layoffs, affecting employees at both retail stores and distribution centers.
3. Benefits and Severance
- Employee Benefits: During the bankruptcy process, Big Lots will seek court approval to continue paying wages and offering benefits like health insurance. However, if store closures or layoffs occur, affected employees may lose access to these benefits.
- Severance Packages: In some Chapter 11 cases, companies offer severance packages to laid-off employees, though this will depend on Big Lots’ financial situation and the decisions made by the court and the new owners.
4. Uncertainty Until Sale Completion
- Outcome Depends on Sale: The future of the company’s workforce largely hinges on the completion of the sale process. A new owner might choose to keep a significant portion of the workforce or opt for deeper cuts to streamline operations.
While Big Lots intends to maintain its workforce during the bankruptcy proceedings, store closures and operational changes could lead to layoffs and reduced staffing, especially in underperforming locations. Employees in remaining stores and profitable sectors could see more job security if the sale is completed successfully.
