She’s been looking for more than a year, but Giovanna De La Rosa has yet to find a job.
After 20 years with Toys R Us in San Diego, she was one of 33,000 workers laid off last summer when the company filed for bankruptcy and liquidated its stores. The retailer, which in 2017 had $11.5 billion in annual sales, had struggled to pay down billions of dollars in debt stemming from a 2005 leveraged buyout.
“It’s been really, really tough,” said De La Rosa, 39, who has a son with autism. “Losing my health insurance has been a big deal.”
More than 1.3 million Americans have lost their jobs in the past decade as a result of private equity ownership in retail, according to a report released Wednesday. That includes 600,000 retail workers, as well as 728,000 employees in related industries. Overall, the sector added more than 1 million jobs during that period.
Women and people of color have been disproportionately affected by the layoffs as debt-ridden retailers closed thousands of stores, according to the report by six progressive nonprofit organizations and workers’ advocacy groups, including Americans for Financial Reform and the Center for Popular Democracy.
“Wall Street has become the new boss for an ever-growing number of workers across the country,” said Charles Khan, organizing director of the Strong Economy for All Coalition, a group of labor unions and community groups in New York that was involved in the study. “That’s meant layoffs, shrinking paychecks and benefits cuts for millions of people.”
Ten of the 14 largest retail bankruptcies since 2012 have been at private-equity-owned companies, such as Payless ShoeSource and Claire’s, according to the study.
More than 1 million of the nation’s 15.8 million retail workers continue to work for private-equity-backed companies, including Michael’s, J. Crew and Neiman Marcus, according to the study.
Private equity firms and hedge funds have been aggressively buying up retailers since the mid-2000s, when a booming economy and low interest rates made leveraged buyouts particularly attractive. The firms pooled money — often from pension funds, wealthy investors and financial firms — and relied on large swaths of debt to acquire companies like Mervyn’s and Linens ‘n Things, with the goal of turning them around.
In practice, though, they routinely sold off real estate holdings, cut workers’ pay and benefits, and jettisoned jobs to turn a quick profit for investors, according to Heather Slavkin Corzo, a senior fellow at Americans for Financial Reform and the director of capital markets policy for the AFL-CIO, a federation of labor unions.
“When a private equity firm steps in, it’s a classic case of ‘Heads I win, tails you lose,'” Corzo said. “They have a real short-term focus on extracting as much cash as possible, as quickly as possible.”
That often means selling off a company’s most valuable asset, its real estate, she said. Retail is a notoriously difficult industry, with intense competition and razor-thin profit margins. Owning their own buildings is one way for companies to shield themselves from economic uncertainty. For private equity firms, such holdings can translate into quick profits. But selling them forces retailers to rent out buildings they used to own.
The study comes a week after Sen. Elizabeth Warren (D-Mass.) introduced legislation that would stop private equity firms from gutting companies and loading them with debt. Her plan would require such firms to shoulder those liabilities themselves instead of foisting them onto their acquisitions.
“For far too long, Washington has looked the other way while private equity firms take over companies, load them with debt, strip them of their wealth, and walk away scot-free — leaving workers, consumers, and whole communities to pick up the pieces,” Warren said in a statement last week.
The industry, she and others contend, faces few regulations that others, including mutual funds and investments banks, do. When a private-equity-backed company files for bankruptcy, executives are typically rewarded over workers, pension funds and other creditors. As a result, 100,000 workers and retirees have missed out on $128 million in pensions because of bankruptcies from 2001 to 2014, according to data from the Pension Benefit Guaranty Corp.
Industry groups say private equity firms make significant investments to help businesses grow, and that their returns help support pension funds for teachers, first responders and other government workers. They say such factors as increased competition and the shift to online shopping also have contributed to retail bankruptcies.
“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, which lobbies on behalf of the industry. "Private equity has a clear record of supporting millions of jobs across all sectors and investing in communities across America.”
But critics say large debt loads from leveraged buyouts make it difficult for otherwise profitable retailers to adapt to industry changes. When Toys R Us filed for bankruptcy in 2017, court documents showed that it had been paying $400 million a year toward its debt, often at the expense of profitability. The retailer’s three companies — Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust — did not immediately respond to requests for comment.
In November, Bain Capital and KKR set up a $20 million fund for laid-off Toys R Us employees. The retailer’s bankruptcy, the firms said, was caused by “an extraordinary set of circumstances,” including changes in the retail landscape and a push by creditors to liquidate operations. Although workers groups say the amount is less than the $75 million they were owed under the retailer’s severance policy, they say it could set a new precedent for future bankruptcies.
Private equity firms and hedge funds have made major investments in at least 80 retailers in the past decade, including household names such as Brookstone, David’s Bridal and Gymboree. All three companies have filed for bankruptcy in the past year.
When the hedge fund ESL Investments took over Sears in 2005, employees like Terry Leiker said the impact was nearly immediate: The company did away with workers’ 401(k) benefits and shifted to commission-based salaries. Leiker’s pay dropped from $13 an hour to nearly half of that, and there were repercussions if she didn’t get at least three customers to sign up for Sears credit cards each week. Full-time workers were replaced with part-timers, and there were changes in merchandise.
“Power tools weren’t made in the United States anymore,” said Leiker, who worked in Sears’s tools department for 18 years. “Clothing quality wasn’t what it used to be.”
Leiker, 65, was laid off in October, days before Sears filed for bankruptcy. She has applied for multiple retail jobs since — at Macy’s, JC Penney, Family Dollar — but has yet to find work.
In all, more than 260,000 Sears and Kmart workers have lost their jobs since ESL took over, according to Wednesday’s report, which is co-authored by Hedge Clippers, the Private Equity Stakeholder Project and United for Respect. Representatives for ESL Investments and Sears did not respond to requests for comment.
“It’s been horrible, absolutely horrible,” said Leiker, who is working with the advocacy group United for Respect. “We’re struggling. Most weeks we can either buy food or we can pay our bills. That shouldn’t be a choice anybody has to make.”
Retail jobs tend to be among the country’s lowest-paying and most volatile. Roughly 1 in 4 retail workers lives below or near the federal poverty line, which is $25,750 for a family of four.
Ann Marie Reinhart had been with Toys R Us for 29 years when its bankruptcy and liquidation left her without a job.
She said she’d applied for more than 100 positions before she finally found work at Belk, a Charlotte-based department store chain that had been acquired four years ago by the private equity firm Sycamore Partners.
On Monday, Reinhart, who had just returned from a family vacation to Ocean City, learned that her job fulfilling online orders at a Durham, N.C., store was being eliminated as part of a broader effort to cut costs. She isn’t sure what she’ll do next.
“It’s been a nightmare, honestly,” said Reinhart, 60. “It’s like private-equity deja vu.”