Big Lots files for bankruptcy

new York
CNN
—

Big Lots, the struggling discount retailer that previously warned there were “serious doubts” about its survival, has filed for bankruptcy.

As part of its Chapter 11 bankruptcy filing, the retailer announced that private equity firm Nexus Capital Management is taking over “substantially all” of Big Lots' stores and business operations. During the process, its stores and website will remain open for shopping.

“The actions we are taking today will enable us to move forward with new owners who believe in our business and provide financial stability while optimizing our operating footprint, accelerating performance improvements and delivering on our promise to be the leader in extreme value creation,” said Bruce Thorn, CEO of Big Lots, in a press release.

Big Lots blamed several economic factors for its bankruptcy, including high inflation and high interest rates. This has caused customers to change their buying habits. They are looking for value – but not necessarily lower prices. That's why dollar stores are struggling while sales at Walmart and Amazon are booming. It's also why McDonald's is struggling while regular chains like Applebee's are growing.

“Prevailing economic trends have been particularly challenging for Big Lots as its core customers cut back on spending on household and seasonal products, which represent a significant portion of the company's sales,” the company said.

More stores could also be closed. Big Lots is in the process of closing about 300 of its 1,400 stores in the U.S. No further closures were announced Monday, but Big Lots warned that it “must close certain locations to ensure our business runs efficiently and we can continue to serve our customers.”

The 57-year-old company has secured $707.5 million in new financing to keep operations going and pay employees and suppliers. Nexus has been named as a “stalking horse bidder” and the acquisition is expected to close later this year, barring better offers.

But it is “unlikely that another bidder will emerge” because the timeline for the sale is tight, says Sarah Foss, head of global legal and restructuring at Debtwire, a publication specializing in leverage markets.

For Big Lots, the U.S. Chapter 11 process is useful because it “gives the debtor negotiating leverage and allows the company to renegotiate and reject onerous leases and contracts that often represent a major financial burden for a troubled company in this sector,” Foss told CNN.

Big Lots joins a long list of well-known retailers facing financial difficulties as customers spend less on non-essential items. Last week, LL Flooring announced it had failed to find a buyer and was closing after more than three decades in business.