Big Lots Faces Plummet to Bankruptcy Amid Customer Spending Decline and High Rates

On August 29, shares of the well-established American retailer Big Lots plummeted more than 30% during after-hours trading on Wall Street. This recent drastic drop comes on the heels of a year-to-date decline of over 88% in its stock price. Reports indicate that after years of declining sales, Big Lots is contemplating filing for bankruptcy protection.

Founded in 1967, Big Lots specializes in offering brand-name closeouts and discount merchandise. As of June this year, the company operated about 1,400 stores across the U.S. Recently, Big Lots reported that its financial results for the first quarter of fiscal 2024 fell short of expectations, with net sales declining by 10.2% year-over-year to $1 billion. The company's financial analysis attributes the failure to meet sales targets primarily to its core customers reducing their spending, especially on high-priced non-essential items.

The current plight of Big Lots underscores the vulnerability of retail businesses in a high-interest-rate environment. Analysts note that discount chains like Big Lots have been under significant pressure this year. Several American retailers have initiated bankruptcy protection procedures. For example, LL Flooring, an American flooring retailer, recently filed for bankruptcy protection and plans to close 94 stores nationwide. Similarly, the American furniture retailer, Koncius, has commenced liquidation proceedings. Many retailers' sales performances have not met expectations.

Examining the root causes, a challenging consumer environment stands out as a significant factor in the sluggish performance of retail companies. High inflation and rising interest rates have curbed consumer spending in the U.S., with consumers increasingly opting for lower-priced disposable products rather than expensive items. Consequently, sales of clothing, seasonal goods, and home furnishings have underperformed, adversely affecting retailers in these sectors. This trend is especially pronounced among low-income consumers. Dollar General, the largest "dollar store" chain in the U.S. with over 20,000 stores across 48 states, serves primarily rural and low-income urban communities. Todd Vasos, CEO of Dollar General, commented that most of their core customers feel the economic situation has deteriorated compared to six months ago. Rising prices, declining employment levels, and higher borrowing costs have shaken the confidence of low-income consumers. Additionally, competition from online channels and supply chain challenges have become crucial factors impacting the survival of retailers.