Jan 10, 2018

Vulture capitalists are killing off retail jobs

Illustration: Lazaro Gamio / Axios

Private equity buyouts account for 61% of the jobs lost and planned for elimination in the 2016 and 2017 retail apocalypse, according to a new study.

Quick take: Private equity snapped up retail chains like Sears and Toys 'r Us in more benign times. Amazon wasn't yet such a potent force, and buyout firms like Bain Capital and KKR — bursting with cash from institutional investors seeking high returns — saw strong profit possibilities in retail.

But when buyers massively turned to on-line shopping, many of these now-private equity-owned chains, laden with interest payments on the buyout debt, lacked free cash to pivot and compete, said Thomas Paulson of Inflection Capital Management.

  • The debt left them without "the capacity to invest, the capacity to evolve, and the stamina to withstand the headwinds," Paulson said in a report to his clients.
  • "When you lever it up and put it in a more restrictive structure, you are less able to adapt to those changes," he tells Axios in an interview.

In 2016 and 2017, some 130,000 actual and planned job cuts were announced by private equity-owned firms, Paulson said, about 61% of the total 219,000 jobs lost in retail.

This year looks likely to be troubled, too — perhaps worse:

  • From the FT's Eric Platt and Anna Nicolaou: "More than half of the largest leveraged retail buyouts completed since 2007 have either defaulted, gone bankrupt or are in distress." They added, "Observers warn that the distress is likely to accelerate in 2018 with nearly $6 billion in high-yield retail debt set to mature."
  • And this from Bloomberg's Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon: "The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary."

Go deeper

In photos: Americans venture out for Memorial Day weekend

Venice Beach in Los Angeles on May 24. Photo: David McNew/Getty Images

Authorities warned Americans to take precautions against the coronavirus amid reports of packed beaches during the Memorial Day weekend, some three months after the pandemic began spreading across the U.S.

The big picture: Law enforcement stepped up beach patrols, authorities on Florida's Gulf Coast closed parking lots because they were full and there were crowded scenes at Lake of the Ozarks bars in Missouri, per AP, which reports a shooting injured several people at a packed Daytona Beach in Florida.

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 9:30 p.m. ET: 5,405,029 — Total deaths: 344,997 — Total recoveries — 2,168,408Map.
  2. U.S.: Total confirmed cases as of 9:30 p.m. ET: 1,642,021 — Total deaths: 97,698 — Total recoveries: 366,736 — Total tested: 14,163,195Map.
  3. World: White House announces travel restrictions on Brazil, coronavirus hotspot in Southern Hemisphere Over 100 coronavirus cases in Germany tied to single day of church services — Boris Johnson backs top aide amid reports that he broke U.K. lockdown while exhibiting symptoms.
  4. Public health: Officials are urging Americans to wear masks headed into Memorial Day weekend Report finds "little evidence" coronavirus under control in most statesHurricanes, wildfires, the flu could strain COVID-19 response
  5. Economy: White House economic adviser Kevin Hassett says it's possible the unemployment rate could still be in double digits by November's election — Public employees brace for layoffs.
  6. Federal government: Trump attacks a Columbia University study that suggests earlier lockdown could have saved 36,000 American lives.
  7. What should I do? Hydroxychloroquine questions answeredTraveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

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Updated 46 mins ago - Politics & Policy

Republicans sue California over mail-out ballot plan

California Gov. Gavin Newsom during a February news conference in Sacramento, California. Photo: Justin Sullivan/Getty Images

President Trump accused Democrats of trying "Rig" November's general election as Republican groups filed a lawsuit against California Sunday in an attempt to stop Gov. Gavin Newsom (D) from mailing ballots to all registered voters.

Driving the news: Newsom signed an executive order this month in response to the coronavirus pandemic ensuring that all registered voters in the state receive a mail-in ballot.