Unraveling the Tactics of Corporate Takeovers
By Rosie Knight, Columnist
It’s been just over a month since it was announced that the 99¢ Only Store was closing all of its nearly 400 stores across the country. The news hit Southern California particularly hard, as 99¢ Only Stores was founded in Los Angeles by David Gold and has become a staple, especially in San Pedro and the Harbor Area where affordable grocery stores with fresh produce are few and far between. The San Pedro location has already shuttered, leaving the community with fewer options than ever. It’s not just customers who have been impacted, but also the many workers 99¢ Only employed.
In a statement about their recent job fair and future actions to help impacted workers, Supervisor Janice Hahn said, “This is an all-hands-on-deck situation. Arm-in-arm with our labor partners, the County is stepping in to make sure these workers have the support they need to get through this crisis, and not only get new jobs – but better jobs,” said Hahn.
“While I hold out hope that the company can be purchased and that the 99 Cents Stores can be saved, we are preparing for the worst and doing everything we can for these workers and their families.”
Kelly LoBianco, director of the LA County Department of Economic Opportunity added, “You’ve got cashiers, stock and warehousing workers, drivers, supervisors, managers and more now displaced and in need of urgent support to get back on their feet. With our Rapid Response teams, we’re able to quickly mobilize partners, provide a wide range of resources to all those affected immediately, and connect workers to quality jobs in new career pathways.”
But what led to 99¢ Only shuttering? And how is it connected to the recent announcement that Red Lobster would declare bankruptcy and shut its doors? The answer is a depressing one linked to many other closures of major chains, from Neiman Marcus to Toys-R-Us: hedge funds, investment groups, and private equity firms buying out companies and then shutting them down.
When we first reported on the closures of 99¢ Only, we drew the line between the fact that the private equity firm that bought the chain in 2011, Ares Management, and the Canada Pension Plan Investment Board, had also bought Neiman Marcus and then declared bankruptcy shutting down most of the locations of the once popular department store.
We attempted to discover the true reason behind the closure of 99¢ Only. The official statement attributed it to “shifting consumer demand and persistent inflationary pressures.” However, we faced difficulties connecting with anyone at Ares Management and the Canada Pension Plan Investment Board. This included Mike Simoncic, the interim CEO of 99¢ Only.
But as we — and thousands of customers — looked for answers, another famed chain was falling victim to the same fate as 99¢ Only and might give us some clues as to why the popular and seemingly thriving discount grocery store shut down.
Red Lobster has long been an American casual dining staple. You see them in most shopping complexes and malls, and the company was even name-dropped in a Beyoncé song, cementing the brand’s status. In 2020 they were sold by the investment group Golden Gate and were bought out by an investment company named Thai Union Group. Four years later, the company is filing for bankruptcy and shuttering locations around the county with 99 restaurants already closed in 28 states with no prior notice to the workers who kept the restaurants going. In a statement filled with language that is now recognizable to those following these closures, Red Lobster CEO Jonathan Tibus explained the company line about the closures. “Recently, the debtors have faced a number of financial and operational challenges, including a difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives, and increased competition within the restaurant industry,”
The real truth though is far more complex and goes back to Red Lobster’s previous owners, Golden Gate. In a recent piece at The American Prospect, Luke Goldstein explains why the company really went out of business and it’s not because of endless shrimp. “Golden Gate crippled Red Lobster by selling off one of its most valuable assets, the real estate it owned, in what’s known as a sale-leaseback, for $1.5 billion.” Goldstein writes. “With that sale, Golden Gate nearly made back its $2.1 billion purchase of Red Lobster, while turning the chain into a permanent leaser, adding a massive additional cost in the form of rent that was orders of magnitude bigger than the cost of Endless Shrimp. When commercial leases started going up, Red Lobster was highly exposed, but by then Golden Gate had already sold off its shares to Thai Union, which inherited all the debts Golden Gate stacked on the company.”
This is hardly a new trend though, as private equity groups go as far back as the 1950s and in the Wall Street boom of the ’80s a new era of greed began. Investment groups took on massive debt in leveraged buyouts and used brutal strategies to impose hostile takeovers. Politician Mitt Romney made his millions after co-founding an investment group called Bain Capital, alongside many other corporate raiders. The wear on the model wouldn’t start to show until the ’90s when leveraged buyouts and corporate raiding fell out of fashion, but they wouldn’t be gone for long thanks to the owners of Snapple, who bought and sold the company within a few years making 900 million for themselves in the process. That’s just a brief history of the model now defining where we shop, eat, watch, and spend our money.
While we still don’t know the reasons behind the closure and bankruptcy of 99¢ Only, it’s clear to see that this is a pattern of extreme capitalism and greed which is impacting us every day. And one that we know Ares Management and the Canada Pension Plan Investment Board have utilized before in their takeover and eventual Chapter 11 bankruptcy of Neiman Marcus, a company that was saddled in debt from leveraged buyouts. Unlike 99¢ Only though, the company emerged after a reorganization in 2020 with less debt and new ownership.
Interestingly, another struggling discount store, Dollar Tree, has purchased 170 Southern California locations of 99¢ Only despite its recent announcement that it too will be shuttering many of its own Dollar Tree and Family Dollar stores over the next few years. While it is a relief that some of our local 99¢ Only Stores locations will remain as discount grocers, Dollar Tree doesn’t offer the same variety of fresh produce and non-processed foods as 99¢ Only offers. Perhaps these newly acquired Dollar Tree stores could run a pilot project to bring more fresh produce into these new stores — potentially by rehiring the buyers from 99¢ Only who had the contacts needed to cater to that demand — especially as the square footage of the 99¢ Only Store locations was on average around twice as large as that of equivalent Dollar Tree stores.
