Retail Bankruptcy and the Gold Rush for Undervalued Assets: Contrarian Opportunities in Chapter 11 Filings

The U.S. retail sector is in the throes of a historic restructuring. In the first half of 2025 alone, 371 large companies filed for Chapter 11 bankruptcy—a 11% increase from 2024 and the busiest first-half filing rate since 2010. While this surge reflects the sector's struggles with inflation, shifting consumer behavior, and rising interest rates, it also creates a unique opportunity for contrarian investors. For those willing to dig into the filings, the liquidation of real estate and inventory assets in Chapter 11 cases often reveals undervalued assets ripe for strategic acquisition.

The Retail Bankruptcy Landscape: A Contrarian's Playbook

Retailers like Rite Aid, Claire's, and Forever 21 are emblematic of a broader trend. These companies are not just shedding debt—they're auctioning off physical assets, lease agreements, and inventory at prices that often fail to reflect their long-term potential. For example, Rite Aid's Chapter 11 process includes the sale of 1,245 store locations across 15 states, with 50 properties owned outright and 1,194 under lease. These stores, typically freestanding and located on high-traffic intersections, are being marketed by A&G Real Estate Partners. Some properties have below-market rents and long-term lease terms, making them attractive to dollar stores, convenience chains, or even fitness centers like Planet Fitness, which has already snapped up former Rite Aid locations.

Claire's, the teen accessories retailer, offers another case study. After securing a $140 million going-concern sale to private equity firm Ames Watson, the company paused liquidation of 950 stores to preserve its brand. This deal highlights the value of intellectual property and retail footprints in mall-based retail, where physical presence remains critical for services like ear-piercing. Meanwhile, Forever 21's liquidation sales and auction process for its U.S. operations underscore the potential for fast-fashion inventory to be repurposed or sold at a discount.

Real Estate and Inventory: The Hidden Gems

The key to identifying undervalued assets lies in understanding the nuances of each bankruptcy filing. For instance, Rite Aid's real estate portfolio includes 6 distribution centers and a data center, which could attract logistics or tech firms seeking regional hubs. The company's DIP financing of $1.94 billion ensures a transparent auction process, with bids already secured for 275 store locations. Similarly, Claire's inventory—sourced from 250 global vendors—includes 7,500 SKUs per store, many of which could be liquidated at a fraction of their original cost.

Contrarian investors should also consider the macroeconomic context. With retail vacancy rates at historic lows (4.2% as of 2025), prime locations are scarce. Rite Aid's properties, for example, are adaptable and located in high-traffic areas, making them ideal for repositioning. The same logic applies to Claire's mall-based stores, which remain relevant for in-person services despite the rise of e-commerce.

Data-Driven Opportunities

The charts above illustrate the retail sector's volatility. While Rite Aid's stock plummeted by 98% from 2021 to 2024, the broader retail sector has underperformed the S&P 500 by 12% over the same period. This divergence highlights the sector's fragility but also underscores the potential for value investors to capitalize on mispriced assets. For example, Rite Aid's real estate is being sold at a discount to its book value, with some properties fetching as little as 60% of their original cost.

Risks and Due Diligence

Investing in Chapter 11 assets is not without risk. Liquidation sales can be chaotic, and not all assets will find buyers. For instance, Rite Aid has yet to secure buyers for 200 of its pharmacy locations, while Forever 21's liquidation hinges on its ability to compete with fast-fashion giants like Shein. Investors must also navigate complex legal processes, including court-approved bidding timelines and creditor claims.

However, for those with the patience and expertise, the rewards can be substantial. A&G Real Estate Partners, for example, has already secured $76 million in bids for Rite Aid's lease agreements, demonstrating strong demand for adaptable retail spaces. Similarly, Claire's $140 million sale to Ames Watson—a firm with a track record of reviving brands like Lids and Champion—suggests confidence in the long-term viability of mall-based retail.

Conclusion: Buy the Rumor, Sell the News?

The current wave of retail bankruptcies is not just a sign of distress—it's a gold rush for investors who can spot value in chaos. By analyzing Chapter 11 filings, investors can identify real estate and inventory assets being sold at a discount, often with favorable terms. The key is to act quickly, conduct thorough due diligence, and think creatively about how these assets can be repurposed.

For contrarians willing to take a contrarian bet, the next few years could yield outsized returns. As one industry expert put it: “When the market is dumping assets, it's not about the price—it's about the potential.” In a world where retail is reinventing itself, the best opportunities often lie in the rubble.