Is private equity ownership killing retail?
More than 1.3 million U.S. workers have lost their jobs in the past decade because of private equity (PE) ownership in retail, according to a report that came out last week from worker advocacy groups.
The figure includes 597,000 employees who worked for retailers owned by PE firms and hedge funds and 728,000 “indirect jobs” in related industries. Overall, the sector added more than one million jobs during that period.
The study found 10 out of the 14 largest retail chain bankruptcies since 2012 were at PE-acquired chains. More than one million retail workers are still “at risk” because their employers are owned by PE firms or hedge funds, including Michael’s, J. Crew and Neiman Marcus.
The large debt loads from LBOs, according to critics, make it difficult for retailers to adapt to industry changes. They also charge that the typical short-term focus tactics of PE managers — extracting cash through dividend recapitalizations and often selling off any real estate — undermines long-term success.
“Wall Street executives exploit gaps in laws and regulations, and lucrative loopholes, to amass huge profits at the expense of working people and local communities,” the report found.
The report urged increased oversight and regulation on PE firms and hedge funds, as well as stronger workers’ rights.
The study came a week after Senator and Democrat hopeful Elizabeth Warren unveiled a policy proposal to impose new rules on PE firms, which she said often act like “vampires” when they buy a business by “bleeding the company dry.”
Backers of PE firms assert they help businesses grow and support pension funds for teachers, first responders and other government workers. The PE firms also often target struggling retailers to enact a turnaround.
“This report is biased and is focused on a sector that experienced tremendous disruption over the past decade,” said Drew Maloney, president of the American Investment Council, a private equity trade group, in a statement released to media outlets. “Private equity has a clear record of supporting millions of jobs across all sectors and investing in communities across America.”
The report was researched and written by Jim Baker (Private Equity Stakeholder Project), Maggie Corser (Center for Popular Democracy), and Eli Vitulli (Center for Popular Democracy).
- Pirate Equity – Center for Popular Democracy and the Private Equity Stakeholder Project
- Private equity’s role in retail has killed 1.3 million jobs, study says – The Washington Post
- Private Equity Has Killed 600,000 Retail Jobs, Study Says – Bloomberg
- Wall Street firms blamed for killing 1.3 million retail jobs – Fox Business
- Are private equity firms the true retail chain killers? – RetailWire
DISCUSSION QUESTIONS: How much blame for the bankruptcies plaguing retail over the last decade should be placed on private equity deals? Do you see the need for greater oversight and regulation of PE firms? Might such regulation result in fewer options for failing retailers?