The report found that private equity’s investment in retail has led to the direct elimination of 597,000 jobs in the past decade and that am estimated 728,000 people have lost their jobs as an indirect result of firms’ investments.
A wave of high-profile retail bankruptcies and store closures in recent years can be attributed in part to investments by private equity firms, according to the report.
Private equity-owned companies are twice as likely to go bankrupt, and 71% of the highest-profile retail bankruptcies since 2012 have been at private equity-owned chains. Of the bankrupt retailers poised to shutter stores in 2019, 70% are backed by Wall Street, among them Payless ShoeSource, K-Mart, Sears and Charlotte Russe, the report noted.
Private equity firms tend to acquire through leveraged buyouts (LBO), which often leaves retailers with massive debt loads and therefore unable to make critical investments, which can be detrimental in a climate of disruption. For instance, experts attribute Payless’ woes to its PE owners, which saddled the company with billions in debt after a 2012 LBO. Attempts to limit losses through 1,000 store closures and the shedding of $435 million in debt via Chapter 11 in 2017 were not enough. Although the retailer picked up new owners after exiting bankruptcy that same year, it was ultimately forced to liquidate all 2,500 of its remaining North America locations in 2019 when it filed its second bankruptcy, leaving 16,000 workers unemployed.
Companies acquired by private equity experience a 12% decrease in employment in the next five years on average, according to a National Bureau of Economic Research analysis of over 3,000 private equity acquisitions. Women and people of color are disproportionately impacted by these cuts, as 76% of retail workers are women while 43% are black, Latino or Asian.
Risky investments are on the rise in 2019, with the share of loans to high-risk firms reaching its highest level since 2013 in May, per the Federal Reserve. Going forward, the new report projects job losses in the retail sector will continue into the foreseeable future.
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