A look back at the most notable bankruptcies of 2024
(WXFP) - This year saw its fair share of bankruptcies, with household names and century-old companies in the mix. Here's a look back at the most notable bankruptcies of the year, and why we saw a rise in 2024.
Rising interest rates, high labor costs, and inflation are just some of the reasons many of these companies blame as contributing factors for their filing.
Going out of business
Among the most notable are the stores that shut all their doors including 99 Cents Only stores, Sam Ash Music, Rue 21, and Conn's HomePlus. While all the companies listed filed for Chapter 11 Bankruptcy, these are the ones that have shuttered all of their locations.
Conn's HomePlus
Conn's HomePlus, the oldest company on this list, was founded 134 years ago. It declared bankruptcy in July 2024 and announced the closure of all 170 of its stores. In the filing, the company cited shifting customer spending habits, increasing inflation, and labor costs as contributing factors.
The company reported that its interest rate expenses increased by $56 million from 2020-2023. The company originally planned to close its 71 underperforming locations, which accounted for $35 million of its total $77.4 million in yearly lease payments.
The company has sold certain assets to Jefferson Capital. There are still some assets remaining after this deal. Bidding for some or all of the remaining assets is scheduled to begin on January 24, 2025.
99 Cents Only
California-based discount store 99 Cents Only announced the closure of its 371 stores across California, Texas, Arizona, and Nevada in early April. The company cited financial difficulties stemming from the pandemic, changing consumer demand, and rising inflation. At the time of the filing, 99 Cent Only employed over 10,800 employees and reported over $1 billion in both assets and liabilities. In its asset sale, Dollar Tree acquired 170 of the locations.
The popular discount stores were famous for their wide variety of items at reasonable prices, including household goods, fresh groceries, snacks, office supplies, health and beauty products, party supplies, and more.
According to a November court filing, all store sales have concluded and the company has submitted plans for reorganization as they enter the final stages of the bankruptcy process.
Sam Ash Music
The second oldest company to sell all of its stores is iconic music retailer Sam Ash Music, founded 100 years ago. The company, also known as “The World’s Favorite Music Store,” filed for bankruptcy in May 2024. The company also announced the closure of all of its 42 locations. Sam Ash cited weakened sales as the market shifted to online shopping during the COVID-19 pandemic.
As sales continued to falter and ultimately never recovered after the COVID-19 pandemic, Sam Ash initially refinanced and moved to close 18 underperforming locations in March. This move, unfortunately, failed to help the company recover, leading to the Chapter 11 filing.
Rue21
The well-known teen apparel company, Rue21, filed bankruptcy in May 2024 and announced the closure of its 543 stores and the liquidation of its intellectual properties and intangible assets.
The company cited over $194 million in outstanding borrowings, largely caused by negative impacts from the COVID-19 pandemic and a shift in shopping patterns from brick-and-mortar to online. Along with this, additional losses have accrued due to underperforming retail locations, increased industry competition and rising inflation.
This was not the first time Rue21 filed for bankruptcy - it's actually their third bankruptcy. The company, originally Pennsylvania Fashions Inc., filed for Chapter 11 in 2003, rebranding to Rue21 afterward. They quickly became a household name, gaining large popularity through the late 2000s and early 2010s. The company had over 1,000 stores in 2014. In 2017, Rue21 filed for Chapter 11 after encountering issues with its dependency on physical in-store shopping, leading to the closure of 400 stores nationwide.
Restructuring under Chapter 11
While other companies shut down permanently, others used Chapter 11 to restructure and maintain their operations during the processes with a reduced footprint or moving to new ownership.
Red Lobster
A big name in the restaurant industry, Red Lobster, filed for bankruptcy in late May in a move to recover after a slump from COVID-19 and very notable operational missteps.
When you think of Red Lobster and bankruptcy, many point to the infamous endless shrimp promotion, which was added as a permanent $20 menu item in 2023 (of course, this is no longer on the menu). Many point to this promotion and menu option as the objective reason for the bankruptcy, however, this is not the case. Analysts have said the move by then-CEO Paul Kenny led to a $11 million loss and created a burden on supply obligations.
However, the bigger issue was its $64 million in lease payments, out of the company's $190.5 million lease obligations, for its underperforming locations along with an overall decrease in guests.
Red Lobster now has a new owner and survived its Chapter 11 bankruptcy proceedings. The company will continue to operate as an independent company maintaining 544 locations across 44 states and 4 Canadian provinces.
Big Lots
In September, Big Lots began Chapter 11 bankruptcy proceedings and the closing of 295 of its locations, with another wave of closures of 250 locations set to be completely closed no later than January 15, 2025. This move will reduce the company's store footprint by 36%.
Big Lots received court approval in early December for the sale to Los Angeles private equity firm Nexus Capital Management in a deal worth roughly $750 million, including $2.5 million in cash. That deal is expected to close in December 2024. At the time of filing, the company held just under $3.1 billion in assets and debt.
The company has been hit hard by recent macroeconomic factors including high inflation and interest rates. The company also notes a major shift in customer spending trends with many customers either delaying or avoiding discretionary spending.
Spirit Airlines
After a failed merger and continued financial turmoil, Spirit Airlines filed for bankruptcy protection in November 2024.
The company had been exploring a merger with another low-cost airline, Frontier Airlines, in hopes of restructuring its debt and other liabilities without a bankruptcy filing. In March, JetBlue and Spirit Airlines ended their proposed $3.8 billion merger after a court ruling blocked the deal.
As of December 6, the company has been delisted from the New York Stock Exchange and can no longer be traded and the stock is considered to have no value.
According to court documents at the time of filing, the company owed 25,000-50,000 creditors anywhere from $1 billion to $10 billion, while holding a similar value in assets. Spirit, the biggest U.S. budget airline, has lost more than $2.5 billion since the start of 2020 and faces looming debt payments totaling more than $1 billion over the next year.
Lumber Liquidators (Formerly LL Flooring)
LL Flooring, which has since been rebranded to its former brand Lumber Liquidators, originally planned to close all of its nearly 400 locations around the nation after filing for Chapter 11 bankruptcy in mid-August. The company made an agreement with F9 Investments which reduced the store closures to 219 locations.
LL Flooring said that over the past year, the company has experienced several macroeconomic and operational changes that have put a strain on the company. This, of course, is due to inflation and the rising costs of labor, as well as a shift in how customers are spending and how often they make these investments.
According to court documents at the time of filing, the company held $500 million to $1 billion in assets and owes $100 million to $500 million to up to 100,000 creditors.
What's behind the increase of Bankruptcies?
Across the board, there is a common theme for bankruptcies. Most have stated issues stemming from the COVID-19 pandemic, increasing inflation, and changes in consumer spending.
Inflation has been a growing concern sweeping the nation, despite inflation rates reaching a 4 year low. Businesses have not been the only ones feeling the pressure of these increasing prices.
But why are prices still going up?
According to Forbes, grocery prices are now 25% higher than four years ago (the inflation rate then was 7%) and are now outpacing overall inflation. Much of the blame for these increases is on the companies that have been seeing record profits while adding more price hikes.
For businesses, growing debt is a rising concern and that debt is rising at a fast rate thanks to an increased interest rate. This year's rates for 20-year loans sit at 6.33% averaging for the year. During 2020 and 2021, rates were low sitting around 3%. Now compare 2024's rates to 2019 which sat at 4%.
The other big factor, and one that has hit many businesses the hardest, is the change in macroeconomic factors. This includes how customers spend, and where they will spend that money. As a result of the increasing inflation and growing prices, many customers either delay or avoid discretionary spending.
Many companies that rely on sales in brick-and-mortar stores have struggled the most since, after the COVID-19 pandemic, there has been a massive shift to online shopping. This can leave businesses stranded that cannot keep up with the changes, and multiple can lead to the downfall of those who fail to adapt.