Brick-and-Mortar Meltdown for its new shareholders: All of them PE Firms.
By store count, this is likely the largest retailer liquidation in the US: Payless ShoeSource is planning to file for bankruptcy again later in this month – just 18 months after having emerged from its first bankruptcy. And this time, it will shutter all its remaining 2,300 or so stores in the US and Puerto Rico, let everyone go at those stores, and be done with it in the US.
Its stores in Canada and Latin America will be unaffected by the bankruptcy filing and liquidation, according to people familiar with the situation, cited by Reuters and the Wall Street Journal.
The specialty shoe retailer has been trying to sell itself in recent months, with the help of financial advisory firm PJ Solomon. But there have been no takers, the people said. And so now, the company moved on to Plan B, a second bankruptcy filing in the US and liquidation. The sources said the going-out-of-business sales would start early next week.
And so this would be it for another huge US retailer that had been bought by private equity firms, had then been gutted and stripped off assets, which left the debt-burdened retailer no means to invest in and build a vibrant online business and a functional fulfillment infrastructure, and so it totally missed the transition of shoe sales to e-commerce.
Even I, a veritable fossil on the Silicon Valley scale, buy all my shoes online because I have trouble getting what I want in the size I want at the brick-and-mortar stores. It’s too much hassle and too much of a waste of time to trot from store to store just to look for a pair of shoes. The internet has mastered this aspect of life.
Payless bankruptcy proceedings revealed just how easy it is for PE firms to strip out assets even shortly before a bankruptcy filing.
PE firms Golden Gate Capital and Blum Capital Partners acquired Payless in 2012 in a leveraged buyout when publicly traded Collective Brands was broken up. After Payless filed for bankruptcy in April 2017, aggrieved creditors filed a claim in bankruptcy court, alleging that Golden Gate Capital and Blum Capital Partners had siphoned over $400 million out of the company via a special dividend before the bankruptcy filing. The PE firms were concerned enough about this claim that they agreed to settle it in July 2017.
At the time of the bankruptcy filing in April 2017, Payless had 22,000 employees and over 4,400 stores in 30 countries.
When Payless emerged from bankruptcy in August 2017, it had shuttered about 700 of its US stores; Landlords of the remaining stores had agreed to cut their rents by an average of 30% to 50%; vendors had agreed to lengthen their trade credit by 60 to 75 days; and it had shed about half of its $838 million in debts, with senior creditors, who were owed $506 million, receiving 91% of the equity of the reorganized company. Junior lenders who were owed $145 million received the remaining 9% stake. These new stockholders included:
- Alden Global Capital
- Blackstone Group ’s GSO Capital Partners
- Axar Capital Management
- Credit Suisse Asset Management
- Octagon Credit Investors.
So now they’ve got another bankruptcy on their hands, this time as shareholders at the bottom of the capital structure.
However, grand dreams were being hatched, and hype abounded, when it emerged from bankruptcy in August 2017. According to Reuters at the time, citing court filings and interviews with company representatives, Payless planned to open four mega stores in the US and invest $234 million over five years, “including on systems that will adjust inventory quickly in response to customer demand and improve its competitiveness on line.” And the hype was thick:
“There’s an extremely loyal Payless customer, who is basically a mother, who knows she can go into a store at any time and find a quality product at a reasonable price,” Payless’ lead restructuring lawyer, Nicole Greenblatt of Kirkland & Ellis, told Reuters.
The company has a business plan with a future, “the antithesis of what we’ve seen in other retail bankruptcies,” retail restructuring expert Christopher Jarvinen of law firm Berger Singerman, told Reuters.
Why all this hype? Because the new shareholders wanted to exit and needed to find someone quickly who’d buy their shares at a high price so that they’d come out with most of their skin intact. But after only 18 months of brick-and-mortar reality, they’re now throwing in the towel.
What remains are liquidation sales for cents on the dollar and probably no crumbs at all for shareholders.
Brick-and-mortar retailers, after PE firms stripped out their assets, including their real estate if they ever had any, that then file for Chapter 11 bankruptcy are notoriously difficult to restructure. Practically all of them sooner rather than later return a second time to bankruptcy court – infamously baptized “Chapter 22” – to be liquidated.
The low quality of the assets is one reason. The other reasons are operational: By the time a retailer goes bankrupt, it mostly has destroyed its brand, lost customers, and totally botched its lackadaisical efforts to get a vibrant business going online.
“I prefer not to scare you at this point, okay. But it’s something that we’ve been able to withstand”: Simon Property Group CEO David Simon. Read… What the CEO of America’s Largest Mall REIT, Simon Property Group, Just Said about the Brick & Mortar Meltdown and How it’s Trying to Manage It
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So the primary reason to do the initial Chapter 11 is just for the consultants, managers, and lawyers to asset strip one more time before finally liquidating?
Gotta squeeze that rock one • last • time !
All these PE bastards .. and bastardetts, of which I’m sure there at least a few, should, for the sake of humanity, take a long nap .. and I ain’t talkin cryogenics either !
This is big new for stark market! QE4 and QE5 coming!!!
QE isn’t coming for the brick and mortar melt down. The PE firms are fine, the wealthy investors got their money and got out. Online sales keep products moving so the only losers will be the workers, and QE does not come in to save the working class, they haven’t even tried to save pension plans for workers. QE saves the wealthy, scream QE when the wealthy start to cry. Until then just watch the fed hold, right now they are pricing out the low end. They haven’t even hit interest rates that hurt the middle.
“Blum Capital Partners”
Thought I recognized the name; this is the vulture capital firm run by Dianne Feinstein’s husband.
Excellent article!
Perhaps you have the brand that fits and now can order on line. But sizes vary between brands at least for women’s shoes.
This is one item I would never ever purchase on line.
But I quibble.
Men’s sizes vary by brand, too. I need to try on every shoe I buy.
I see i’m not alone in this assessment.
I ahve wide feet, no way I could order shoes online either.
Even runners, (tennis shoes for you southerners), change size and fit over time. If I could buy online I would. However, a good solution when you find a keeper (and wear shoes for a good month or so), is wait for a sale and then go 2-3-4 pairs and stash ’em away.
In the US, some (many?) shoes come with a width component to their size: D, DD, E, EE etc. You can find those online in a breeze. That’s one of the reasons I like buying them online.
Paulo: I actually did that, then my doctor put me on a new prescription — the ONLY side-effect of which was my feet grew 2 by sizes, of which 1.5 of it was permanent.
I suppose I can order the same shoes in my new size and return the pre-drug size in the new boxes so the bar codes match. “No wonder he returned them, these boxes contained the wrong size. Damned 3rd world factory!”
I agree. How do you buy clothes and shoes without trying them on, unless there’s a holgram or something in the virtual world?
If you look at online shoppers in the UK; the online sellers have to take back unwanted items and bare the cost of returns.
This has resulted in online shoppers buying various sizes and colours and having the pleasure of trying them in the comfort of their homes and returning what they don’t want at the cost to the online seller.
ASOS, the largest online clothes retailer in the UK and Europe has suffered as a result.
That is the same case in the states. People buy a ton of everything, try it on, and send back everything that doesn’t work. Most online retailers offer free return shipping, and I believe there isn’t a restocking fee. But the same policy for opened media, especially computer software, applies as in the physical store such as Staples (another victim of private equity) or Walmart.
As a man I have differing priorities with footware. My preference went to Allen Edmond shoes that were carried by a local high volume store. They are made not far from my locale so that is a plus for me. So much for shoes.
Allen Edmond makes great shoes. It used to be easier to get custom made shoes from them, but they have to work a few kinks out of the new system before they can make 6EEE men’s shoes again. Very high quality.
Why is it that all these write ups are solely critical of the PE industry? Are they supposed to be doing God’s work (like Goldman Sachs)? I have nothing to do with that industry, but last I heard is that someone needs to lend them the money, whether pre deal or post, and certainly should understand the risks and motivations prior to doing so. Apparently lenders greed can be glossed over for these stories. I guess a child who takes candy from a grown up is an equivalent devil.
“Apparently lenders greed can be glossed over for these stories.”
Pointed that out many times. It’s just that it sounds like a broken record after a while :-]
“broken record” yes.
Just proves how many times this has occurred. Too many.
Wall street is devouring itself. The PE firms destroy companies for short term gain, forgetting that the applied commerce their greed destroys, is what has provided equities for the stock market.
Brings to mind a vision of an ‘Ouroboros’.
You’d almost think there’s too much “capital” and “liquidity” floating around out there.
How’d that happen?
Anyways, this I know for sure:
Payless bankruptcy and others will be constructed as further need for more QE and interest cuts. Because “markets” because “global economies” because “I forgot to brush my teeth this morning.”
Banking is a necessary, metabolic part of any/every economy. Banks lending to predatory and parasitic PE firms is a perversion of that necessary function, one that needs to be tightly controlled for the common good.
Unlike banks, private equity firms could (and should) disappear tomorrow, with the overwhelming mass of humanity better off as a result.
Focusing on PE is useful, both because it has virtually no redeeming economic or social value, and because it might lead to tactics and strategies that make it so radioactive that the banks (and pension funds) can no longer fund it.
“I buy all my shoes online because I have trouble getting what I want in the size I want”
Maybe shoes are different but I like trying shoes and cloths on before buying because most never seem to be exactly the same size. With my levis I can pull 2 pairs right off the rack and one fits completely different than the other. same with shoes, a size 9-1/2 from one manufacturer isn’t a 9-1/2 for another………IMHO.
So far every online purchase I’ve made wasn’t exactly what I wanted (or thought I ordered) or it came slightly damaged.
I’m with you. Sizes seem to be approximate in both waist and leg. There is no way I would consider Johnston & Murphy wingtips on line.
But I doubt Payless offers Johnston & Murphy or Allen Edmonds.
Yes, sizes aren’t precise.
The only way I can think of online as working is that you can send itback, but then what’s the guarantee that the next one fits? How many times do you do that before you give up and trudge to the store?
Pretty much pants and shoes are the two articles of clothing I don’t buy online. Unless I buy the exact shoe from the same manufacturer. Probably explains why I have 10+ pairs of unopened Doc Martens.
It should, and will be as easy as mailing a picture of your feet on a measured grid.
Custom shoe companies presently make use of 3d camera pictures, and email the 3d pics software files directly to a router that carves the positive molds of the associated feet.
In the near future the 3d file will be directed to a 3d printer to custom make the shoes.
Could you post the name of custom shoe companies currently doing this? I am interested both for information and as a consumer.
That’s about 18,000 Payless employees put out of work. I hope they can find suitable replacement work. Unfortunately, with today’s growing wealth concentration, there is no demand to support job growth.
Bobber,
Unfortunately there are still massive Catastrophic consequences still in the pipeline for the average American citizen.
In all likelihood though we are going to divert the attention of those blunders that politicians from both sides of the political divide by embarking on another war ,
that should happen as soon as the signs and voices for rectification of this shambolic situation we’re finding ourselves in grows louder and begins to unsettle the establishment!
My thoughts are with these poor workers and their families.
Most of them will be working 2 or 3 lousy jobs, each one being counted as a new job in the stats, yay!
By the doctrine of creative destruction, they should all train to be Private Equity Capitalists.
This is nonsense. We’re losing a Payless that probably employs a dozen people and the job board has hundreds of similar jobs that employers are trying to fill.
Our little burg of 19,000 with have added .. due to this latest ‘induced’ bankruptcy .. a few more souls to the unemployment rolls .. in an environment lacking adequate, as in livable, wage jobs. But for the homeless & used needles lying about, there’s aplenty none-the-less …
But hey .. BlumCo. and all the rest … That’s what’s most important !
#WhiteShoesFerengi
Perhaps a Revolution is well overdue now Wes? What do you reckon?! :)
You know, this is just going to get painted as some smear attempt against the good liberal like Feinstein. And in turn, this emboldens the real crazies on the left, like the guy in the oval has emboldened the nutjobs on the right.
This whole thing is just a bit insane.
Feinstein isn’t a liberal. She’s a neocon war hawk and is only slightly to left of the Republican party because they’ve gone off the deep end. She’s also way out of her depth in the current environment – she still thinks that Republicans are her buddies (from an interview on NPR last year). It’s amazing that she got re-elected given the district she represents….
I am curious how many more of these there are?
OSH, Toys R Us, this is getting ridiculous. One would think that there are legislation or some type of rules against this kind of action, where there is a LBO of some type, usually using the company’s own cash, and then the acquirer pays themselves a dividend, load the company down with debt and take it public or some such shenanigans.
Ah well, too much excess like this is what really kills the economy.
In that case we should introduce legislation to prevent wolves from preying on sick animals and vultures from feasting on dead bodies.
These leveraged buyout-specialized PE firms rarely target healthy companies with solid plans for the future. More often than not the victim may be outwardly healthy but beneath the surface boil many problems. For all these retailers there’s a common denominator: their old leadership shrugged off the threat/potential of the Internet and was wholly invested in a business model that belonged to the early 90’s if not to the 80’s.
While the Internet was playing catch all was fine: the large margins brick and mortar retailers had enjoyed for decades allowed them to both service heavy debt loads and pay off generous dividends and fees. But once the Internet caught up…
These specialized PE firms are not innocent, mind you. Their main failure was they kept everything as it was before, including the blind faith in all-out brick and mortar expansion. Before the Internet caught up most were engaged in big rounds of expansion which make the following scramble to cut costs all the more painful.
It is often said that most generals are fighting the last war. The same could be said about most retailers: the scramble to build an online presence is fine, but everybody is doing it just like those generals who merely ape the tactics of the enemy that defeated them without understanding them. They are bound to be defeated again by a superior enemy which may not necessarily be Alibaba or Amazon.
It’s an interesting analogy. MC01. It is like a natural reaction perhaps, to instinctively want to help the downtrodden or fight against perceived injustice. But ultimately that instinct could make things worse.
So, the question is really one about whether evolution should be allowed to take its natural course, survival of the fittest essentially. Those who adapt to the changing circumstances survive, the rest don’t. Sure, It might be tempting to intervene and save that wounded mammal from that horrifying reptile that is going to stangle it to death, but intervening that may deprived the said reptile of a meal and ultimately do more harm to the ecosystem if a similar pattern is applied to every such situation. If one were to take an analogy from nature and applying it here.
One could argue that this type of capitalism is the best way to go. After all, all those factory jobs were outsourced previously, but working to reverse that in a particular way when the real cause might be automation is essentially fighting the last war. On the other hand, to attempt to stop this with alternative solutions like universal income might lead to even worse outcomes, a stagnant society that doesn’t advance.
But it is difficult to say either way, if you try to preserve the said brick and mortar by allowing them to survive using non-capitalistic ways, like QE, it is crony capitalism at the same time, it could be socialism. It may preserve the jobs temporarily, but could lead to an even worse outcome ultimately.
What a fascinating thought.
By the way, are you going to comment on the death of the A380? It is another example of fighting the last war, or perhaps in 30 years, terminating a good idea way too early.
I’ve inserted a brief paragraph on the A380 long awaited demise in the latest piece I sent to the Wolf Street HQ.
It will be published shortly.
Thanks for the interest.
After boaring an A380 soon after it came into service, I could see that it was a doomed project.
Accountants got it wrong.
In theory the shift to centralised distribution and internet should introduce efficiencies that bring added wealth, that is to say a reduction in costs in terms of effort, money or time.
The remaining financial profit from such enterprise will likely be concentrated, not only because of monopoly (which is something large brick and mortar achieved to a degree) but also due to a reduction in the need for labour.
That in itself is deflationary, with the resulting overcapacity of labour left to its own means to compete for, or offer in return for, those more centralised profits.
This might be all well and good, as mankind is innovative and soon turns his hand to new activity, or simply settles back into more traditional activity with added cheaper resources at hand. However where price values are set from the past via debt into the future, the margin allowable for deflation is much reduced, as this feeds back into nominal earnings and hence ability to repay.
Debt is leveraged on assets, that is to say in essence property and labour. The result in this deflationary circumstance is the transfer of those leveraged assets to the more centralised profit makers due to the inability of average people to go out with the tide. The financial profit makers are left with the spoils. Ultimately that would mean bankruptcy to others, transfer of physical assets, and a kind of enslavement of labour to a rentier class.
This is what current monetary policy is about, maintaining a flow of cheaper money to keep the national accounts and structure afloat, to keep society functioning to an acceptable degree. It can be seen as either redistributionary , transitionary, or as taking advantage of the tail end of a corrupt debt system in an effort to further expand it, further concentrating profit with an elite.
Without this level of debt the adjustment would be more organic, perpetual at a lower scale. If you have no debt, if housing is easily accessible and soon repaid, the tolerance to price adjustment is large. I know people in the west well who live acceptably with a mere hundred dollars a month, after accomodation and without resort to any further effort. That is obviously not really the wider idea, could be said to be a part product of outside economies of scale, and is limiting in various ways, but it does compare out the inflexibility of being leveraged in debt, and the reliance and vulnerabilities it creates.
There are arguments for and against a coordinated national economy and society. They range from effectiveness of scale right through to corruption and the building of what amounts to a technological trap, not forgetting the harsh realities of social management and politics that arise due to everyone seeming to know better at how the goliath should be applied.
When we talk of debt, we have to return to the definition of our money to understand how pervasively accepted it is. Legal tender is the type of money that must be offered in payment of debt. The only debt that might be obliged involuntarily on a person is government debt. So it follows that the power of payment in legal tender is based on this obligation, which had previously slowly appropriated natural currencies into its cause, before replacing them completely with an unbacked set of adjustable credit values. It is still possible to use other monies, but the system of accountability to government for the purpose of taxation is so difficult to complete on them that they are simply left aside in practice, or kept mainly only as an independent store of value.
So, here is the inevitable questions, as more liquidity is pumped into the system, it cheapens money. But it doesn’t necessarily reduce the level of debt, because consumption demands haven’t changed. At some point, you get to inflation, and then hyperinflation. Which also inevitably leads to the decline of society.
This eventually brings about some form of revolution that sweeps out the old order, and brings out some forms of renewal. In history, sometimes these dramas take centuries to play out. (think of the mandate from heaven and hereditary rule in China which lasted centuries, with periodic renewals in the form of new emperors) Other times, the old order comes crashing down, and is rapidly replaced either through externalities or the reactions to said externalities. (Again, looking at China, the fall of the dynastic rule due primarily to externalities, then the rapid rise and fall of nationalist government, again, mostly due to externalities, but with the final nail being driven in by the reaction to those externalities and shutting China off from a lot of external influences until its leader recognized it was time to change strategy)
So, really, the question becomes do we still have a long runway before the cycle of renewal kicks off in earnest, or is that cycle right around the corner? Then, to what degree is that level of renewal.
Ok, I just realized, I’m rambling, and don’t have a point here.
It isn’t rambling, it is good to converse and there is not enough sincere outside of the box of that going on in my opinion. As long as it is tolerated by the host and is reasonably coherent, putting ideas down in comment sections as a kind of workpad helps open up new lines of thought, brings in new ideas from others, and also helps form the original ideas because you have to assemble them carefully to write them. Even simple acceptance by others can be very encouraging. Many people know a lot but do not feel confident enough to share their knowledge, so just reading others making the effort in a reasonably civil and open way can also be inspiring. You don’t get taught much if any of this at school, especially to find original perspective.
I don’t know the answers to those questions either, but the knowledge that the world tends to work this way keeps me up late sometimes.
Very insightful. It’s 50/50. Just today, I screamed and pulled my hair when trying to track something on Home Depot online, and the same can be said about Costco, and others. One can easily picture the executive suite as some old guy just before retirement, biding their time waiting for their pensions or golden parachutes.
They are not even poor copies of Amazon online features.
I don’t see where your analogy of animal behavior in nature has anything to do with the PE take-over stories that we have been reading about in Wolf Street, in fact. As I read the stories, PE firms are able to borrow large amounts of money to buy some firms that may be struggling. They are then able to extract cash from the firms by having the firms borrow large amounts of money of which the PE firms are able to transfer a significant portion to themselves. At this point, the struggling firm is now completely crippled and has no way of surviving. This sounds more like a fraud on shareholders, customers, suppliers and employers than any healthy thinning of the herd.
This is perfectly logical when the Corpsters and banksters own the country, and the right to make money reigns ueber alles.
Brick and Mortar Meltdown is irrelevant to wall street with the Twitter in Chief pumping markets to the moon in speech today:
“Our economy is thriving like never before. … The market is close to the new highs that we’ve created. We have all the records. We have every record,” Trump said. “But we’re getting close to creating new records.”
Watch the SP500 2790-2814 range, as I know Trump is…LOL Not sure reality matters anymore as Pres wants to create “new records” in the market. Amazing, yet scary to watch main street economy falter as the wall street scheme soars…moremoneyplease!
Is there any wonder why he started his “emergency” speech with phony China tariff talks results…..TRUMP: We’ve had a negotiation going on for about two days. It’s going extremely well. Who knows what that means, because it only matters if we get it done……
That had to be done first, because the market is the only metric he watches, and extra-constitutional actions tend to depress markets.
The “It’s going extremely well”, pumps the market, meanwhile, a couple hours later I see CNN talking about “positive” reports on negotiations and FOX out saying that “no progress”.
But hey, another up day in the market… but pay attention to the second line of that quote.
And, by the way…4th quarter GDP growth now estimated to come in at 1.5 %
https://www.frbatlanta.org/cqer/research/gdpnow.aspx
Wonderful economy…
1.5% growth after 10 yrs of QE and counting.
Imagine that.
Or take the whole 10 years. I’ve read it is well below historical norm.
Even a second grader might ask “But if 10 years of QE got us very low growth, why are we doing it?”
And the inverse is, raising interest rates and terminating QE will not necessarily reduce growth since there is not clear evidence they helped growth.
Zombie companies and Private Equity distressed financing look like they are meant for each other. I guess majority of these zombies sell mostly Chinese junk and are not that useful anyway. They won’t be missed.
Success has many fathers and failure is an orphan …or in the case of brick & mortar retail, only bastard children of PE firms? Nope…don’t think so. Anyone here been to Payless lately?
Poor workers? Nope. Unemployment is at a half century low and job postings greatly exceed those looking for work. If you really want to work and cannot find a job, you are not really looking.
Here’s an idea. All of us can buy Payless, save it from BK and make it a state-owned enterprise. Force Bezos to pay a 90% tax rate to fund Payless workers salaries. And then just sit back and watch all the people flood into the Payless stores to buy shoes.
Those job postings do not attract applicants because the wages are to low.
They post the jobs. No one applies. Then they get foreign labor.
So, would it be better force the wages higher to help the staff? But possibly doom the company faster to financial insolvency? Or is it better to let the place die, not throw in good money after bad, so to speak.
Or as the poster below suggest, let in low wage workers from elsewhere to take these jobs perhaps and prolong the agony of a failed business model. And then creating even more homeless later on.
Really, the question is how much is human capital worth? And can it adapt to changing circumstances.
So help me understand. If someone is suddenly out of work at Payless and wants another job, wages offered at other employers are the problem?
There are literally hundreds of open jobs in my area and after glancing down the list, virtually all would match or exceed Payless wages.
Many of the jobs you’re referring to are posted perpetually, since the turnover for those low pay/no benefits/ high tedium/high stress/high employer-surveillance jobs is often higher than 100% annually. A feature, not a bug.
Oh, and by the way, your deflecting discussion about the ravages of private equity to some Fox News fever dream about a socialist USA is called the Straw Man Fallacy.
Yes. Posting a job is not the same thing as hiring.
Hmmm, interesting, one would be curious to understand what the solution to the problem is. Let’s say you legislate against the activities of the private equities. It still doesn’t solve the problem that the store in question may have had a failing business model or vulnerable in some way shape or form due to circumstance beyond its control.
What would be the next step to the inevitable failure that could be associated with these companies? Take JC Penny for example, it is teetering from years of poor decision, ready to fall over. You could see private equity lining up perhaps to cut this company apart, assuming if there is still value left. What would anyone do to that company to try to save it and make it work?
Michael, I made the point that failure is supposedly an orphan …when in reality there are multiple factors that led to the Payless demise. And just to add now …PE’s role is a symptom of causes. If problems are traced to their source, we are able to better solve them. PE is not the source.
And what, then, is that source?
Failings businesses are nothing new, but an entire industry that takes viable businesses – after all, for PE the low-hanging fruit has long been picked and consumed, so they’re left with dregs like Payless – and sucks them dry via fees, special dividends and the like, is a problem.
In the not-so-distant past, this kind of behavior was rightfully called racketeering, exactly the way La Cosa Nostra would take over legitimate businesses and “bust (them) out,” via liquidating anything of value.
How is private equity any different, except in protection by the legal and political system?
Michael, The source was extremely simple … a weak business. (Again, when was the last time you went to a Payless? ). So they made a decision to sell the company and then sold the company to someone who would buy it, presumably the high bidder or perhaps only bidder.
Dude, Blum didn’t take a gun with him to the meeting and force a transaction.
Many of us have sold things we didn’t really want to sell, but still took the money. After we took that money, our say in the matter was over. If we sold it to scoundrels, then we made that choice.
Unless the individual(s) buying that asset from you is receiving preferential treatment from the tax system – and legislated at their behest – then your analogy is false.
A private transaction between individuals is nowhere near the same as a huge industry whose entire reason for being is to use debt to extract wealth from existing companies and re-direct it to a small group of insiders, irrespective of the consequences to local workers and communities.
Your focus on Payless, a minnow among PE’s prey, rather than the institutions, interests and classes that benefit from private equity (and those harmed by it) is a distraction from the fundamental issue which Wolf’s article addresses.
What’s happening here is that the PE firms are being demonized and “Payless” is somehow becoming a victim of rape. Not only is it overly simplistic, but it’s mostly wrong.
Payless was obviously poorly managed. That could have been from any number of causes: adding too many units or square feet, being non-competitive as a discounter, being run out by shrewder, sharper competition (maybe a Ross), the store brand lost any cache it may have had, maybe, and more. So, should we feel for the employees who were left in the dust? Yes, but their plight was a sorry one to begin with. Game Stop has stores with employees. Why are they still working there? Didn’t they get the telegram that their business is basically obsolete? Carl Icahn, one of the big PE guys, bought into Blockbuster at bargain prices. I’d be very surprised if he didn’t lose a lot on that lost cause.
The PE firms, if they are doing wicked things, should not be allowed to if Congress really gave a s””t, which they either don’t or are paid not to. The problems are mostly at the highest levels of regulation, the legal system and the way companies and boards of directors can let businesses fail (still getting paid), stupid management, or… But I don’t think that demonizing the PE firms is reasonable. They, like people who “flip houses”, buy houses at foreclosures, try to make a living buying and selling fixer-uppers – all are dealing with higher risks than they are probably factoring into their investments. That probably goes on for bankruptcies where some part of the PE company’s capital mucks around, but no one knows about the PE firms who lose their shirts when they overpay or underestimate the vulnerability of a “rescue”.
The P E firms aren’t particularly “creative” in the usual sense of business evolution and entrepreneurship, but they aren’t demonic, either. I have a hard time with those people on Wolf Street who love to slap blame on the evildoers. Witch-hunting should be a crime.
Yes, witch-hunting non-existant witches should be a crime.
And legislating against vampire capitalists – who do exist and for whom PE is the poster child – should be pursued to stop their crimes.
– Low unemployment ???
– More and more people become “independent contracters”. But when those “independent contractors” become unemployed then those people don’t show up in the unemployment statistics any more.
– Again: Low unemployment ???
In the US, “unemployment” measures are survey based (two types: household surveys and company surveys) and are defined as people who want work, and are looking for work, but cannot find work. It’s NOT based on unemployment compensation, which I think is what you were referring to.
We do have measures for that, such as initial unemployment insurance claims and continuing unemployment insurance claims, and they, as you correctly pointed out, do not include contractors because contractors are not eligible for unemployment compensation.
Ho will we ever survive? Now there’s only 245,813 different corporate entities offering us shoes made in Bangladesh and Romania, rather than 245,814.
Won’t someone think of our right to choose?
Societal collapse imminent!
In my town of 45000, there is only one shoe store due to industry consolidation: Payless. So now I get to enjoy ordering 10 pairs online to find the one that fits. With the added hassle of returning the rest. Love that Post-Capitalism economy.
How am I ever going to survive? I only have some land to grow food and sometimber and old buildings for scavenging to build my house, among other things … How far far away from the modern mind are the methods of life that used to be commonplace in the country …
Once we ride the coaster over the sharkfin of depleting petroleum EROEI, too far will become too soon for many.
Then shoes will be the least of our worries ….
MD —The answer is in the question… or was that just a typo?
All this reminds me of some very fine restaurants, eg Outback,
Carrabas, that began offering decent meals at a decent price. They became successful. Then were bought out by PE firms.
Then the above cut buying the better provisions and served lesser quality and lo and behold, gradually customers stopped coming. Now it is possible to go to these establishments and see empty tables and no waiting. Even on a Saturday night.
Just waiting for them to shut down.
And people wonder why they call it “vulture capitalism”.
What do you expect when your country has been a totalitarian oligarchy for decades?
Years ago a professional shoe expert shared me his secret. He said my wide feet only fit American shoe last sizes (European, too).
He told me that Chinese shoe lasts (the mold they use to manufacture shoes) are much smaller and really don’t fit USA wide feet.
I would never find a shoe that fits in Payless. Waste of time.
Shoes that work for me can be bought online at Amazon: Dr. Scholes with (shudder) velcro straps the compress the width to fit yer feet.
Considering that 80% by volume of the shoes sold in America are made in China if I were a Chinese general I would stop shoe sales to the USA and then watch everyone walk around barefoot.
I think it’s the reverse.
If you want to see kids in barefoot, go to the neighboring countries near China. Seeing kids without any shoes is normal.
Now go to a poor State like Mississippi or Arkansas. Bet you won’t find many going barefoot.
I mean no offense to the South. I used to live there.
Higher-end companies have perfected online shoe-selling in the UK: I have never been disappointed and had to make a return, and sizing from such a company is always consistent – but we are talking £400 or so and boots (I buy in sales!).
Ditto for clothing, and I am fortunate to be a perfect fit for a standard size – why on earth go bespoke in that case?
I do however sometimes go to a physical branch having ‘shopped’ online, as I do like to see real people in actual shops -which is what makes a real society.
Of course, at that level, they are well-trained professionals, not dumb kids who don’t care, or who might care but don’t know a thing.
But I can well imagine that in the mass market buying online would not work so well, as wide variations in sizing are, as it were, the standard – as I’ve often found when buying from a company new to me. The variations can be outrageous!
What they should do is turn those retail stores into their warehouses for online sales. Build a small front on the store with some checkout kiosks and with 6 or 8 dressing rooms with touch screen full body height displays where customers who want to try stuff on can browse virtually and then a worker in the warehouse brings the garment to the dressing room
Xypher, have no idea if it would work, but people who think like you are why the US produced a very high standard of living.
A hundred years ago Argentines had the same standard of living as Americans. They stopped thinking like you.
True capitalism is thousands of failed ideas and experiments resulting in learning what actually works. It is a continuous process. Crony capitalism involves arrested development and ensuring faulty ideas have no competition, things that only govts can provide.
Buying on line or paying bills on line. Obviously folks do not need or already have too much interaction with our fellow man. Personally, I like to see where my money goes. Stand in line to pay your taxes, some really interesting conversations can happen.
First they came for the department stores,
but I did not speak out,
because I don’t work for a department store.
Then they came for the toy stores,
but I did not speak out,
because I don’t work for a toy store.
Then they came for the shoe stores,
but I did not speak out,
because I don’t work for a shoe store.
Then they came for me
and there was no one left
to speak out for me.
Of course, it’s still quite possible to get obscenely rich in brick-n-mortar retail, but not by running a successful company. Instead, just exploit the fact that it’s perfectly legal to rob and murder companies. Its been a very popular business model among the nouveau billionaire class.
Someday, all restaurants will be Taco Bell. That should frighten you.
Naturally the pirates prefer to blame the victims, and flacks for the pirates will try to argue with me about that, as one did on Jan 26, 2019. He lost.
The US economy is getting liquidated in such a way that almost nobody notices that globalist corporatism is reducing the population of the US to serfdom. The war on retail is only one part of the process. This process also includes student loan debt peonage which promises to reduce nearly the entire US professional class to serfdom. All very profitable. Then there’s corporate tax evasion through economic coercion, à la the Amazon HQ2 scam, the kind that suckers local governments into competing with each other to screw themselves into bankruptcy.
There are hundreds of ways, and new techniques emerge all the time. Make your own list, and put yourself on it. You know they’re coming for you.
Spot on.
No fan of PE but this country was and remains over retailed. These big companies just kept expanding to show top line growth and a bit of Non-GAAP to massage everything else. In addition to Blum Capital, Golden Gate Capital also had a piece of Payless and if their name does not sound familiar, they are the ones who loaned Zales money at an outrageous rate prior to the company being bought by Signet (SIG) the latter of which has a shrinking market cap making it ripe for a PE play. More to come I am sure. H2 ’19 should be interesting. Wolf, any list of other retail chains making their way into the history books in the next year?
“No fan of PE but this country was and remains over retailed.”
Agree, too many people trying to sell what other people make.
All true, but it doesn’t really address the main issue of PE’s economic and social toxicity. It has weakened and then devoured many once-strong and viable companies. Strong and viable, until PE arrived.
If you think about it, “vulture capitalism” is the wrong metaphor. Vultures have a useful niche in any ecosystem, as carrion eaters and scavengers. And you could say there’s a role for that in the financial system, feeding off the remains of failure.
But vultures are not parasitic and predatory; they don’t also feed off of and then kill what they eat, and that’s a huge difference between their behavior in nature and PE’s in the real world.
What do you call a wealthy, powerful collection of Corporate Persons that combines predator, parasite, carrion-eater and heavily-juiced political donor?
We need a new name for that kind of entity. And a way to fight it and neutralize its catastrophic impacts.
michael, i believe you are describing vampire capitalism to a T. entirely self-serving and predatory.
“Someday, all restaurants will be Taco Bell. That should frighten you.”
Begging the assumption; Not if you don’t patronize Taco Bell and the fare from your kitchen is nothing like theirs.
Generally for me, I find modern life norms to be best coped with by simple avoidance.
“… it’s still quite possible to get obscenely rich in brick-n-mortar retail …”
See: RH (previously ‘Restoration Hardware’). They doubled-down on fancy stores and paper catalogs and, to my utter astonishment, it paid off (they also have a viable online business). But, they appeal to the rich, and very rich, so maybe it’s understandable? They also did a massive stock buyback.
RH is up to their nostrils in debt.
“…Amazon HQ2 scam” – indeed.
There was line drawn in the US between church and state a couple hundred years ago, but big corps and state are in the bridal chamber.
Trading does not rely on force, but it certainly seeks it. And the place it can be bought is the state.
Yes the US economy is turning into a hollow shell. Most of the interior of the country is in a depression. The sheeple are idiots and voted for the privilege of being bent over and used. I hope they get it good and hard as Mencken used to say.
Short of a continent-wide general workers strike, the ‘sheeple’ as you snidely refer to them as, have but little recourse for rights wronged ! Voting doesn’t seem to be working out so swell..
What’s YOUR suggestion to turning the U.S.s Titanic around ??
My main suggestion would be to liquidate Amazon and Break up Wal-mart.
personally, i try my best to convince people to move their accounts from wall street banks to local/regional ones. my personal preference is the bank of sealy, but most people aren’t quite ready to go all in on that, so smaller banks and credit unions are my fallback argument. somebody has to facilitate the direct deposit to atm withdrawl transactions, might as well be a little guy in the food chain. cash, or cash equivalent, remains the once and future king.
I was at the Sears Outlet store yesterday. Bought a dryer, salesman knowledgeable. Apparently the Outlet store chain is owned by another company. He also said the nearby Sears store is not going anywhere. They carry different brands, cosmetic damage, returned goods, same guarantee. A five year warranty would cost almost as much as the dryer. Old dryer a Kenmore, 25 years, if I had kept the motor clean it would still be working.
We once had this quaint notion of severance pay – for workers.
Now severance is only for private equity sharks who cremate jobs. Mitt Romney was paid millions by Bain Capital for over a decade after he departed.
Yes, and his campaign motto was that he “knew how to create jobs”. He said it with a straight face.
For every African American that loses his/her job at Payless, Amazon will import an immigrant from India to enhance our convenient online purchasing experience.
So please do not point the finger at other people for “Killing The Kennedys”. When after all it was you and me.
When the only rule is to make money, and when the rules are rigged such that some retailers are allowed not to charge sales tax and others must, this is what happens.
I was just reading another story on another site about Amazon. Its a place where it is quite regular to see co-workers crying. It is quite regular to see people coming out of a ‘meeting’ crying. It is a place that so overworks its employees that most don’t last 6 months.
Of course, that only works for an online business, where the customers never see the crying employees suffering under the lash of the whip. And since we live in an age where our society not only allows this but greatly rewards this and calls it genius, the stores where the customer has to meet with the employees and thus they can’t be crying or suffering on the job, at least not openly, and where those same stores had to pay sales tax, well then those stores that thus can not compete are forced out of business and become gruel for the PE raiders. And yes, people are out of jobs, unless they want to go do back-breaking work in an un-airconditioned facility where the bosses find it cheaper to have ambulances standing by for heat stroke victims. And of course if they don’t do that, we will hear those unwilling to be slaves called useless eaters and there will be screaming that those lazy bums should be left to die in the cold or left to starve to death because food stamps are only for workers and if Amazon doesn’t pay enough then that’s your own damn fault in the land of the free.
Gillets, long ago worked at a place sorta similar to what you described. Leaving was a good decision and the tears turned to tears of joy. I made the decision -not everyone around the world is as fortunate.
With that said, the fact that so much of the process of getting our amazon boxes is hidden is a great point. Companies that abuse their employees and/or customers will pay a price ultimately …if people are able to make choices.
My Amazon order “muscle memory” is entering a state of atrophy as I write this.
Hmm, I noticed you called Payless a “speciality shoe retailer”. Was this a recent change? As what I remember them as was an “affordable” shoe retailer.
Funny, because it would be Payless customers who could have easily transitioned to internet sales, and I presume they have. Payless was nice and affordable. But they offered next to no customer service. You wandered the racks of shoes, picked out one you might like, sat on the little stools scattered about and tried it on all by yourself. When you had picked out the affordable shoes that you wish to buy, you went up to the one employee up behind the cash register.
On one hand I can see all sorts of problems getting well fitting shoes over the internet. But when I think back, that would be just like going to Payless.
“Specialty” in this case meaning “just shoes” — not special shoes — in the sense that its specialty is shoes.
I think the term specialty means shoes that you can’t get anywhere else.
This isn’t a major loss. Most of their shoes are made of plastic and really don’t last. Translation, Payless could have survived if they had better shoes.
*Cue the Married With Children theme*
Shoe stores are so awful that apparently not even women want to expend time there anymore plus online you can get more different colors and styles.
Unfortunately outside the US shoe sizes are not standardised at all. Even if you always buy the same brand you still have to try the shoes because they have different designs and so they might not fit you.
What will Al Bundy do now instead of selling shoes?
watch the teevee, scratch his nether regions, and dream of high school football prowess just like he always did. oh yeah, and hope UBI becomes reality!
I don’t understand anyone’s problem with buying shoes online. I have a type of shoe I know and love, [which I discovered at a retail store years ago] and when they wear out I go online and get the exact same shoe, same size.
Not all of us want those stupid camo combat boots.
Online only works in your situation-if you know the brand and size. Otherwise, it makes no sense. I bought a pair of shoes once online and they were the wrong size. I had to mail them back and argue on the phone for an hour to get my money back for the shoes and the package I mailed. Never again. And I don’t believe online is taking over sales. If you go online you see the same steep discounts you see in malls. If online demand was rising online prices would be rising.
About time it was outdated let Amazon buy the inventory and blow it out …..let’s see how long the canadian outfit lasts I say 6 months at most …distribution is done
– Yep, this is the ugly face of capitalism.