Chapter 11 Bankruptcy Strikes Again: Another Discount Retailer Shuts Down

According to The Street, Over the last two years, brick-and-mortar retail stores have faced significant financial challenges. Common reasons for these struggles include inflationary pressures, rising costs of labor, freight, and goods, lingering effects of the COVID-19 pandemic, increasing interest rates, and a shift in consumer behavior away from physical malls and shopping centers.

Notable Bankruptcy Filings in 2023

Several major retailers filed for Chapter 11 bankruptcy in 2023 but managed to continue operating their stores. Notable examples include Rite Aid and Party City. However, Bed Bath & Beyond and Tuesday Morning both filed for bankruptcy and subsequently closed all their locations last year.

LL Flooring and Store Closures

LL Flooring filed for Chapter 11 bankruptcy on August 11, 2024. The retailer closed 211 stores but successfully sold 219 stores to F9 Investments, which plans to operate them as a going concern.

Discount Retail Challenges

Discount retailers faced severe difficulties in 2024, as evidenced by 99 Cents Only filing for Chapter 11 bankruptcy on April 8, 2024. The company later transitioned to Chapter 7 bankruptcy in May, leading to the closure and liquidation of all 371 stores across Arizona, California, Nevada, and Texas.

Big Lots Files for Bankruptcy

Big Lots, which operated 1,392 stores in 48 states at the beginning of 2024, filed for Chapter 11 bankruptcy on September 9. The company plans to sell its assets to its stalking-horse bidder, Nexus Capital Management, for a $760 million bid that includes $2.5 million in cash, debt payoff, and assumption of liabilities. The court has scheduled an auction for October 18, contingent on multiple bids, with a hearing to approve the sale proposed for November 4.

Since filing, Big Lots has listed 497 stores slated for closure nationwide.

Channel Control Merchants to Wind Down Operations

Channel Control Merchants, along with 17 affiliates that operate 68 Dirt Cheap, Treasure Hunt, and Dirt Cheap Building Supplies stores across eight Southern states, has filed for Chapter 11 bankruptcy with plans to wind down its operations. The Hattiesburg, Mississippi-based debtor cited several factors for its financial distress, including product issues with foundational supplier Target Corp., shifts in consumer spending habits, onerous lease terms, and ongoing repercussions from COVID-19 store shutdowns. Increased costs of labor, freight, and goods also contributed to the challenges.

Also read: New Beginnings: Bed Bath & Beyond Emerges Under a Fresh Identity”

The company’s line of credit expired on July 19, 2024, and it was unable to secure additional liquidity. The debtor determined it could only continue operating until the end of 2024 without further funding, prompting the decision to wind down store operations in a Chapter 11 bankruptcy filing.

Financial Overview and Creditors

In its bankruptcy petition filed in the U.S. Bankruptcy Court for the District of Delaware, Channel Control Merchants listed assets and liabilities ranging between $100 million and $500 million, including approximately $32 million in unsecured debt. Its largest unsecured creditors include Target Corp. (owed $15.6 million) and Amazon.com (owed $5.8 million).

Founded in 1954, the company was acquired in May 2023 by a group of investors, including Hilco Global and Behrens Investment Group. The stores primarily sell secondary-market merchandise, including excess inventory and customer returns from major retailers.