Significant Retail Job Losses At Private-Equity Backed Companies Should Worry Us

Thousands of jobs have been lost at U.S. private-equity backed companies, and nowhere is this more acute than in the retail sector. In less than a decade, almost 600,000 retail jobs in private-equity backed companies have been lost. Additionally, over 700,000 jobs have been lost at suppliers and local businesses interconnected with those retailers, making the total number of people unemployed 1.3 million.

The chase for yield by private equity firms has had significant adverse consequences for ordinary Americans. As explained by Terrysa Guerra of United for Respect and Rion Dennis of Americans for Financial Reform, “Private equity (PE) firms often gain  control of companies like retail chains by using high-risk leveraged buyouts before extracting money from the target firms. The purchased retailers are forced to pay millions in fees, take on massive debts, and often even borrow money to pay dividends to the PE firms that seized control. This puts the viability of the stores and the livelihoods of workers at risk in order to deliver vast wealth to a tiny handful of PE executives.” 

Since 2012, over 70% of the retail chain bankruptcies took place at private equity- acquired retail chains. Unfortunately, as I wrote a few weeks ago, I believe that more retail bankruptcies and job losses are headed our way given the number of private-equity backed retailers which presently have distressed credit ratings, which show private-equity backed retailers’ rising probability of default on their debts. It is important to keep in mind that there are lots of private-equity retailers that are not rated, so getting their financial statements is very difficult since that information is not public. 

I find the data very troubling, because these bankruptcies, rising distressed credit ratings and painful job losses at private equity-backed retailers have been happening during a period of  arguably the most impressive economic expansion in the U.S. Moreover, in aggregate, employment in the retail industry grew every year since the end of 2009 until 2017.  

For Illinois Congressman Jesús G. ‘Chuy’ García, these retail job losses are personal and particularly worrisome, because many of his constituents and their families in the fourth congressional district are experiencing the painful consequences of losing their jobs at private-equity backed retailers. I learned that Congressman García met recently with members of United for Respect, a non-profit organization, which brings together low-income workers, their families and communities to improve working conditions in the retail industry.  I called him and we spoke about his significant concerns. “I represent a very working class district that has lots of retailers,” García told me.  “Some like Payless and Forever 21 have gone bankrupt. There are lots of retailers in my district that are affected by PE firms. I am worried about the types of conduct that they engage in such as loading these retailers with debt that they lead to bankruptcy.” Together with Senator Elizabeth Warren and Representative Mark Pocan, García is one of the Democratic co-sponsors of The Stop the Wall Street Looting Act, an important legislative effort to finally bring accountability to private equity professionals.

Illinois has almost 900 private-equity owned retailer stores, so Congressman García is rightly focused on private equity executives’ actions in his state.

During his meeting at United for Respect he heard of “tragic cases, of people who worked at Payless and Kmart who lost their jobs. One Mexican-American man went to work for Payless right out of high school. Now, after 25 years of work, he is out of a job.” He also met a Philipino-American who had met a similar sad fate at another local retailer and “now in his early 50s is struggling to make ends meet.”

The congressman was also troubled when he heard about a “mom of five children who is struggling to make ends meet after she lost her job at Kmart” and about “a woman who works at Forever 21 and who is in limbo waiting to see if she too will lose her job.” And even more disturbing was for him to hear about a pregnant woman who is having to “drive Lyft and Uber since she lost her job at Lowes.”

García would like to arrange a meeting or hearing with private equity executives. It is important “to challenge the assertion that private equity earns high returns for investors and that they use their expertise to make a profit. What they do is saddle these companies with large debt and drive them to bankruptcy.” He is concerned about private equity ads that he has seen. “They claim that the average employee earns $71,000 on average at private-equity owned firms; they do not tell you the median salary. Factored into the high average figure are the salaries of executives. This is not what regular workers are earning.”

No doubt, García will get to ask pertinent and probing questions in the House of Financial Services Committee “America For Sale,” hearing on November 19. “We need to be talking to private equity executives about their skin in the game. They should share in the responsibility of liabilities, legal judgements, and pensions of PE-backed companies to better align incentives between PE executives and the employees and their acquisitions.” García would like to work across the aisle with Republicans. “As legislators, we all need to look at the downward spiral being created by PE and how can we slow it down.”

Since the rate of the 11-year old U.S. economic expansion has been slowing down this year, all legislators should indeed focus seriously on how to compel private equity executives to stop firing retail employees and to help those fired find another job in retail or to retrain them so that they are employable in other sectors of the economy. The more people are fired and take longer to find a job, the more their job losses will have negative spillover effects to the rest of America.