January 22, 2026
Alfa-Photo.yandex.ru/Depositphotos.com
Does Private Equity Deserve Its Shark Reputation?
The bankruptcy of Saks Global again brought out charges that, similar to other retail collapses, burdensome debt built up under private equity ownership was to blame.
The poster child of private equity disrupting retail is Toys ‘R’ Us, which underwent a leveraged buyout (LBO) in 2005 — led by private equity firms KKR, Bain Capital, and Vornado Realty Trust — only to file for bankruptcy in 2017 and close its U.S. stores in 2018. Critics have argued the LBO saddled Toys ‘R’ Us with over $5 billion in debt that diverted funds from modernization to better compete — while private equity owners benefited be extracting fees, selling off real estate and interest payments.
KKR said in a statement at the time that it lost “many millions of dollars” on its Toys “R” Us’ investment, and blamed the chain’s troubles on market forces, specifically the growth of e-commerce retailers.
Other chains that were forced into bankruptcy after taking on debt in leveraged buyouts include Hudson’s Bay, Sears, Kmart, Sports Authority, RadioShack, Barneys, Gymboree, Joann Fabrics, and Payless ShoeSource.
Private Equity Versus Retail Excellence: At Odds, or No?
The culprit identified by many in the Saks’ bankruptcy case is Richard Baker, a real estate developer and founder of private equity firm NRDC Equity Partners. Baker’s past deals in the retail space had already given him a poor record for turnarounds.
As The Wall Street Journal explained, Baker created NRDC “to snap up retailers with valuable real estate. A memo he wrote that year listed his targets: Lord & Taylor, Canadian chain Hudson’s Bay, Saks, Germany’s Galeria Kaufhof, and Neiman Marcus. He would go on to buy them all. Each eventually filed for bankruptcy—though not all on his watch. Even though the companies failed, Baker often made money on the real estate.”
The merger of Saks and Neiman Marcus was designed to reduce costs, add leverage over brands, and provide shoppers a better experience through shared inventory and loyalty programs. However, the $2.2 billion of debt absorbed to fund its acquisition raised concerns, considering Saks was already losing money amid a global luxury sector slowdown.
“The deal was built on aggressive earnings and cost-cut assumptions that have not been achieved, while the added leverage has proven difficult to sustain in a structurally shrinking retail sector,” Tim Hynes, global head of credit research at financial intelligence firm Debtwire, told Reuters.
The deal’s finances were “a recipe for disaster,” Mickey Chadha, VP of corporate finance at Moody’s Ratings, told The New York Times.
Phil Wahba, retail reporter for Fortune, believes the merger’s failure was undermined by many stores competing against each other — as well as the leverage luxury brands have gained as they’ve opened stores. However, he likewise cited the debt taken on in the merger, which ultimately led to delayed payments to vendors and consequently to understocks in stores. Wahba wrote, “As often happens with private equity acquisitions of retailers, the companies were larded with unsustainable debt, which made investing in the core business more difficult and led to penny-pinching measures that have been destructive to the businesses.”
A Financial Times podcast, however, noted that while NRDC was a private equity firm, Saks was initially exploring a loan from private equity giant Apollo Global Management to fund the Neiman’s merger — but turned to publicly held high-yield bonds. Eric Platt, the FT’s U.S. investment editor, said lessons from Saks’ collapse should centered around the risks of excess debt.
Platt said on the podcast, “I would say that perhaps as a community, we need to stop thinking of like private versus public. It’s just credit markets and a lot of this used to be done by banks and a lot of it still is, but like, yeah. Are these investors who are writing big checks and big loans thoughtful enough in their due diligence or restrictive enough when they need to say no?”
BrainTrust
John Lietsch
CEO/Founder, Align Business Consulting
Carlos Arámbula
Principal, Growth Genie Partners
Doug Garnett
President, Protonik
Recent Discussions
Discussion Questions
What lessons should Saks’ collapse into bankruptcy offer around private equity ownership or debt leverage?
What’s your overall take on the pros and cons of private equity in retail?
Poll
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Broadly, yes it does … but not universally so. Many PE deals – like Toys R Us, Red Lobster, Payless, Gymboree, and Claire’s – have ended in disaster. Others – like Dollar General and Five Below (both of which were PE owned for a time) – turned out OK. The difference between the two groups is whether the retail businesses can cope with the leverage and short-term financial pressures that PE places on them. In cases like Dollar General and Five Below, the models were robust and high growth enough to clear those financial hurdles without starving the business of investment. In most other cases, the market would not support the growth rates needed to make the economics work. But generally, all too often PE and retail objectives are misaligned. PE is very short term focused, good retail needs a longer-term horizon to work.
The difference between the two groups is whether the retail businesses can cope with the leverage and short-term financial pressures that PE places on them.
Gee, it’s almost like the people buying these companies should understand them…first.
Maybe they consult with AI bots to assess them…
Ah, but can a bot sign a confidentiality agreement ?
Shared goals and vision on the endgame would help. Unfortunately, human nature is to grab the lifebuoy when drowning.
While I agree that robust models like Dollar General can survive the ‘leverage hurdle,’ the fundamental issue remains the ethical misalignment between PE rewards and retail risks. We often see top executives bargaining for massive retention bonuses even as a company slide toward bankruptcy, while the frontline employees—who have no ‘hidden’ safety net—are left to bear the brunt of the collapse. The ‘short-term focus’ mentioned isn’t just about time horizons; it’s about a financial strategy that extracts maximum cash for the owners through debt, leaving the business too hollowed out to pay its vendors or protect its workforce. Ultimately, if the goal is to strip the brand of its real estate and assets to ensure the ‘sharks’ get paid, the retail model never really had a chance to be ‘robust’ in the first place.
Whether the reputation is shark-like or otherwise, the destructive tendency of private equity with leveraged debt is clear and present — especially in retail. An excellent book by Dan Davies called The Unaccountability Machine follows its journey from a valuable addition to the US economy to todays methods where investors avoid all responsibility for their mistakes while driving companies into bankruptcy.
The ‘Unaccountability Machine’ described by Dan Davies is exactly what we see when retail bosses secure hefty bonuses while their companies collapse under the weight of hidden leveraged debt. It is a systemic failure where ‘sales and revenue’ are used as a public-facing distraction from the fact that the business is being hollowed out from within for the benefit of a few. This model ensures that those at the top are never held responsible for the liabilities they create, effectively transferring all the risk to vendors and frontline employees. Until we bridge this accountability gap, the retail landscape will continue to be a playground for short-term extraction rather than long-term excellence.
The PE industry as a whole has earned much of its reputation. But there are instances where PE firms helped in the right way, leading to good stories and outcomes. For example, California’s upscale niche grocer Erewhon is backed by Stripes as a minority partner, helping them fund expansion, with strong year over year growth, and building their brand in smart fashion. Annie’s is another (organic food) recipient of PE backing, keeping the brand in tact, while leading to high growth and distribution into stores all over the country.
The comparison to sharks is fitting. If I choose to swim with sharks then I also choose to accept the risks inherent in such a decision and shouldn’t be upset with the sharks for biting me. After all, the sharks just want to live (by eating me).
Equally, if I choose to do business with an organization who is generally oriented toward short term value optimization (exit value), then I choose to accept the risk that they will do exactly what they are built to do (optimize quicker returns over deep, sustainable growth/value). After all, they just want to make money.
I guess the lesson is really simple: if you don’t want to get bit, don’t swim with sharks.
There’s a classic PE pattern that has served the PE company well, and destroyed a number of prominent retailers over the past decades. 1. Leveraged Buy Out – so use someone else’s money to pay for the acquisition (and create a high debt service that the Retailers margins did not previously have to cover.) 2. Spin the real estate out to a NewCo, (take out more cash) and lease Stores back to the Retailer who now can add much higher rent costs against an already diminished margin expense. The acquired Retailer is now on a knife edge of additional costs vs. available margin. 3. Slash expenses and Capital spending to help drive profitability, which inevitably makes the Customer experience worse over time, less service – tired looking stores – out of stocks. Pushing the teetering business over the edge just takes a rise in interest rates, a recession or slow down, or an off season and the Chapter 11(s), Chapter 7’s writes the last chapter.
I think they’re kind of like drunk drivers: most don’t do harm, but when they do, the damage is so spectacular it overrides the consideration “it’s only a few”.
More cerebrally, I’d say it’s not the equity part that’s the problem, it’s the debt they often take on; but as long as we limit personal liability, we will have this moral hazard problem.
All P-E firms are not alike. I have had the fortune of dealing with eight different P-E firms, all of which are ethical, mindful, do seek to a make a profit but in all cases, do not over leverage their portfolio companies. Admittedly, these have not been the P-E firms that would manage very large deals. It appears that the P-E firms that participate in mega deals are very aggressive in raising debt and, consequently, burden the acquired businesses with often-unmanageable debt service.
Saks’ bankruptcy shows how leveraged buyouts can cripple struggling companies—cutting flexibility and starving the investments needed to thrive, in retail or any industry.
Private equity can unlock capital and efficiency, but without a deep understanding of the business, financial engineering alone fails. My take: Success demands balance; smart capital, operational insight, and long-term commitment, not just short-term extraction.
Equity holders, public or private, are highly incentivised to see deals work. Debt holders, protected by the real estate values, just might not care if the retail business actually succeeds. They’re protected. The math is all there at the beginning of the deal. Sales, costs, margins. Now how realistic are the projections? It would have taken a miracle for Sak’s/NM to come out of this deal in some recognizable form. So yeah, the folks that burdened the deal with all that debt were absolutely predatory. Big shock. Now how long before the next predatory deal gets done?
Putting snark aside, debt is not really the problem. Excessive debt loaded onto an ailing retailer with malice aforethought is the problem. And healthy, well run retailers don’t back themselves into that kind of vice. It’s an open market, and problematic scenarios play out based on market dynamics. Smart retail money reads the room and says “no thank you”. Smart real estate money says, “OK, as long as my money is secured with real estate, let’s have a go at it.” The case can be made that it’s all ‘just business’, and it’s the ailing retailers fault for getting into such a deep hole to begin with. Some retailers need to learn The First Rule of the Hole. When you find yourself in a hole…STOP DIGGING!
The most important lesson from Saks’ descent into bankruptcy isn’t a blanket indictment of private equity, but a clear demonstration of how excessive debt leverage and short-term financial engineering can cripple a retail business that otherwise has strong brand equity and loyal customers. When private equity ownership prioritizes extracting value through dividends, asset sales, and high-interest burdens rather than investing in growth, technology, customer experience, and working capital, the operational foundation needed to compete — particularly in a fast-changing retail environment — erodes. In Saks’ case, heavy leverage sapped flexibility and left the organization exposed to competitive pressures from digitally native players and more agile omnichannel rivals, turning what should have been a strategic repositioning into a financial spiral.
That said, private equity itself isn’t uniformly good or bad for retail — its impact comes down to the specific strategy, capital structure, and execution discipline applied in each situation. On the positive side, private equity can bring sharp operational focus, cost discipline, access to strategic networks, and a willingness to make hard decisions that incumbent owners may avoid. For underperforming or stagnating retailers, that injection of accountability and capital can catalyze necessary transformation. But the downside — as Saks illustrates — is when leverage is aggressive, investment is starved, and the horizon is too short-term. Retail is a business where consumer preferences, supply chains, and technological adoption evolve constantly; layering on significant debt without commensurate investment in these areas can accelerate decline rather than prevent it.
So the overarching takeaway is that private equity’s value in retail depends on how it’s deployed. When PE sponsors act as true partners — aligning incentives with long-term growth, reinvesting for relevance, and building sustainable operating models — the outcomes can be positive. But when the model tilts toward extracting cash through financial engineering at the expense of innovation and competitive investment, it undermines the very thing retail depends on most: a compelling value proposition for customers and the flexibility to adapt as markets change. Saks is a stark example of the latter, not a universal judgment on private equity itself.
I have dealt with PE firms since the late 80s. Back then, I found them much better partners than VCs. But something changed in the early 2000s. It became apparent that rejuvenation or growth was no longer in their business models. Many times, their projected exit was bankruptcy. Why? It gave them the best ROI because they took all their returns out before the entity went down. Once they realized that was the best alternative, they became deal salesmen to their targets rather than partners.
The ‘shark’ reputation of private equity is well-earned because the legal structure of an LBO allows owners to extract ‘dividend recaps’ and management fees while shifting 100% of the bankruptcy risk onto the company and its employees. While executives justify their pre-bankruptcy bonuses as ‘essential for stability,’ these payments are often funded by the very debt that suffocates the retailer’s ability to pay its vendors and frontline staff. We must stop viewing these collapses as ‘bad luck’ and start seeing them as a deliberate financial strategy where the store’s survival is secondary to the owner’s exit profit. Until bankruptcy laws prioritize employee severance and vendor payments over executive retention plans, this cycle of ‘strip and flip’ retail will continue.
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Broadly, yes it does … but not universally so. Many PE deals – like Toys R Us, Red Lobster, Payless, Gymboree, and Claire’s – have ended in disaster. Others – like Dollar General and Five Below (both of which were PE owned for a time) – turned out OK. The difference between the two groups is whether the retail businesses can cope with the leverage and short-term financial pressures that PE places on them. In cases like Dollar General and Five Below, the models were robust and high growth enough to clear those financial hurdles without starving the business of investment. In most other cases, the market would not support the growth rates needed to make the economics work. But generally, all too often PE and retail objectives are misaligned. PE is very short term focused, good retail needs a longer-term horizon to work.
Gee, it’s almost like the people buying these companies should understand them…first.
Maybe they consult with AI bots to assess them…
Ah, but can a bot sign a confidentiality agreement ?
Shared goals and vision on the endgame would help. Unfortunately, human nature is to grab the lifebuoy when drowning.
While I agree that robust models like Dollar General can survive the ‘leverage hurdle,’ the fundamental issue remains the ethical misalignment between PE rewards and retail risks. We often see top executives bargaining for massive retention bonuses even as a company slide toward bankruptcy, while the frontline employees—who have no ‘hidden’ safety net—are left to bear the brunt of the collapse. The ‘short-term focus’ mentioned isn’t just about time horizons; it’s about a financial strategy that extracts maximum cash for the owners through debt, leaving the business too hollowed out to pay its vendors or protect its workforce. Ultimately, if the goal is to strip the brand of its real estate and assets to ensure the ‘sharks’ get paid, the retail model never really had a chance to be ‘robust’ in the first place.
Whether the reputation is shark-like or otherwise, the destructive tendency of private equity with leveraged debt is clear and present — especially in retail. An excellent book by Dan Davies called The Unaccountability Machine follows its journey from a valuable addition to the US economy to todays methods where investors avoid all responsibility for their mistakes while driving companies into bankruptcy.
The ‘Unaccountability Machine’ described by Dan Davies is exactly what we see when retail bosses secure hefty bonuses while their companies collapse under the weight of hidden leveraged debt. It is a systemic failure where ‘sales and revenue’ are used as a public-facing distraction from the fact that the business is being hollowed out from within for the benefit of a few. This model ensures that those at the top are never held responsible for the liabilities they create, effectively transferring all the risk to vendors and frontline employees. Until we bridge this accountability gap, the retail landscape will continue to be a playground for short-term extraction rather than long-term excellence.
The PE industry as a whole has earned much of its reputation. But there are instances where PE firms helped in the right way, leading to good stories and outcomes. For example, California’s upscale niche grocer Erewhon is backed by Stripes as a minority partner, helping them fund expansion, with strong year over year growth, and building their brand in smart fashion. Annie’s is another (organic food) recipient of PE backing, keeping the brand in tact, while leading to high growth and distribution into stores all over the country.
The comparison to sharks is fitting. If I choose to swim with sharks then I also choose to accept the risks inherent in such a decision and shouldn’t be upset with the sharks for biting me. After all, the sharks just want to live (by eating me).
Equally, if I choose to do business with an organization who is generally oriented toward short term value optimization (exit value), then I choose to accept the risk that they will do exactly what they are built to do (optimize quicker returns over deep, sustainable growth/value). After all, they just want to make money.
I guess the lesson is really simple: if you don’t want to get bit, don’t swim with sharks.
There’s a classic PE pattern that has served the PE company well, and destroyed a number of prominent retailers over the past decades. 1. Leveraged Buy Out – so use someone else’s money to pay for the acquisition (and create a high debt service that the Retailers margins did not previously have to cover.) 2. Spin the real estate out to a NewCo, (take out more cash) and lease Stores back to the Retailer who now can add much higher rent costs against an already diminished margin expense. The acquired Retailer is now on a knife edge of additional costs vs. available margin. 3. Slash expenses and Capital spending to help drive profitability, which inevitably makes the Customer experience worse over time, less service – tired looking stores – out of stocks. Pushing the teetering business over the edge just takes a rise in interest rates, a recession or slow down, or an off season and the Chapter 11(s), Chapter 7’s writes the last chapter.
I think they’re kind of like drunk drivers: most don’t do harm, but when they do, the damage is so spectacular it overrides the consideration “it’s only a few”.
More cerebrally, I’d say it’s not the equity part that’s the problem, it’s the debt they often take on; but as long as we limit personal liability, we will have this moral hazard problem.
All P-E firms are not alike. I have had the fortune of dealing with eight different P-E firms, all of which are ethical, mindful, do seek to a make a profit but in all cases, do not over leverage their portfolio companies. Admittedly, these have not been the P-E firms that would manage very large deals. It appears that the P-E firms that participate in mega deals are very aggressive in raising debt and, consequently, burden the acquired businesses with often-unmanageable debt service.
Saks’ bankruptcy shows how leveraged buyouts can cripple struggling companies—cutting flexibility and starving the investments needed to thrive, in retail or any industry.
Private equity can unlock capital and efficiency, but without a deep understanding of the business, financial engineering alone fails. My take: Success demands balance; smart capital, operational insight, and long-term commitment, not just short-term extraction.
Equity holders, public or private, are highly incentivised to see deals work. Debt holders, protected by the real estate values, just might not care if the retail business actually succeeds. They’re protected. The math is all there at the beginning of the deal. Sales, costs, margins. Now how realistic are the projections? It would have taken a miracle for Sak’s/NM to come out of this deal in some recognizable form. So yeah, the folks that burdened the deal with all that debt were absolutely predatory. Big shock. Now how long before the next predatory deal gets done?
Putting snark aside, debt is not really the problem. Excessive debt loaded onto an ailing retailer with malice aforethought is the problem. And healthy, well run retailers don’t back themselves into that kind of vice. It’s an open market, and problematic scenarios play out based on market dynamics. Smart retail money reads the room and says “no thank you”. Smart real estate money says, “OK, as long as my money is secured with real estate, let’s have a go at it.” The case can be made that it’s all ‘just business’, and it’s the ailing retailers fault for getting into such a deep hole to begin with. Some retailers need to learn The First Rule of the Hole. When you find yourself in a hole…STOP DIGGING!
The most important lesson from Saks’ descent into bankruptcy isn’t a blanket indictment of private equity, but a clear demonstration of how excessive debt leverage and short-term financial engineering can cripple a retail business that otherwise has strong brand equity and loyal customers. When private equity ownership prioritizes extracting value through dividends, asset sales, and high-interest burdens rather than investing in growth, technology, customer experience, and working capital, the operational foundation needed to compete — particularly in a fast-changing retail environment — erodes. In Saks’ case, heavy leverage sapped flexibility and left the organization exposed to competitive pressures from digitally native players and more agile omnichannel rivals, turning what should have been a strategic repositioning into a financial spiral.
That said, private equity itself isn’t uniformly good or bad for retail — its impact comes down to the specific strategy, capital structure, and execution discipline applied in each situation. On the positive side, private equity can bring sharp operational focus, cost discipline, access to strategic networks, and a willingness to make hard decisions that incumbent owners may avoid. For underperforming or stagnating retailers, that injection of accountability and capital can catalyze necessary transformation. But the downside — as Saks illustrates — is when leverage is aggressive, investment is starved, and the horizon is too short-term. Retail is a business where consumer preferences, supply chains, and technological adoption evolve constantly; layering on significant debt without commensurate investment in these areas can accelerate decline rather than prevent it.
So the overarching takeaway is that private equity’s value in retail depends on how it’s deployed. When PE sponsors act as true partners — aligning incentives with long-term growth, reinvesting for relevance, and building sustainable operating models — the outcomes can be positive. But when the model tilts toward extracting cash through financial engineering at the expense of innovation and competitive investment, it undermines the very thing retail depends on most: a compelling value proposition for customers and the flexibility to adapt as markets change. Saks is a stark example of the latter, not a universal judgment on private equity itself.
I have dealt with PE firms since the late 80s. Back then, I found them much better partners than VCs. But something changed in the early 2000s. It became apparent that rejuvenation or growth was no longer in their business models. Many times, their projected exit was bankruptcy. Why? It gave them the best ROI because they took all their returns out before the entity went down. Once they realized that was the best alternative, they became deal salesmen to their targets rather than partners.
The ‘shark’ reputation of private equity is well-earned because the legal structure of an LBO allows owners to extract ‘dividend recaps’ and management fees while shifting 100% of the bankruptcy risk onto the company and its employees. While executives justify their pre-bankruptcy bonuses as ‘essential for stability,’ these payments are often funded by the very debt that suffocates the retailer’s ability to pay its vendors and frontline staff. We must stop viewing these collapses as ‘bad luck’ and start seeing them as a deliberate financial strategy where the store’s survival is secondary to the owner’s exit profit. Until bankruptcy laws prioritize employee severance and vendor payments over executive retention plans, this cycle of ‘strip and flip’ retail will continue.