PE firm acquires Big Lots as it pledges to maintain 'extreme bargains'

• Home goods sales slowed down, leading to high interest rates and inflation, prompting Big Lots to file for bankruptcy.
• Nexus Capital Management has agreed to purchase Big Lots for $760 million, which includes $2.5 million in cash and the remaining debt.
• Over the past two years, the home goods industry has faced pressure due to increased demand resulting from the Covid-19 pandemic.

On Monday, the home goods retailer filed for bankruptcy due to low demand for its affordable furniture and decor, resulting from high interest rates and a sluggish housing market.

Nexus Capital Management has agreed to purchase Big Lots' business for approximately $760 million, which includes $2.5 million in cash, as well as the company's outstanding debt and liabilities, according to court records.

One of the largest closeout retailers in the country, which operates over 1,300 stores in 48 states, specializes in offering discounted prices on all home items. Despite generating $4.7 billion in revenue in fiscal 2023, sales have been declining since the pandemic hit, as demand for home furnishings decreased.

Big Lots announced that it will continue operating its business as usual while initiating the process of shutting down approximately 300 stores in an effort to improve its financial stability and cut expenses.

"Our actions today will enable us to move forward with new owners who believe in our business and provide financial stability, while we optimize our operational footprint, accelerate improvement in our performance, and deliver on our promise to be the leader in extreme value," CEO Bruce Thorn stated in a news release. "As we navigate this process, we remain committed to offering extreme discounts, making shopping easy in our stores and online, and providing an exceptional customer experience."

Evan Glucoft, Nexus' managing director, stated that the company is "optimistic" about Big Lots' future.

Glucoft stated, "We are thrilled to collaborate with Big Lots and assist in restoring its position as the top extreme value retailer in America."

For months, Big Lots has been struggling due to high interest rates and a slow housing market, which reduced consumer demand for new furniture, decor, and other home supplies. Although discount retailers typically perform well during economic downturns, Big Lots primarily serves lower and middle-income consumers, who have cut back on discretionary spending at a higher rate than wealthier individuals.

""Recent macroeconomic factors, such as high inflation and interest rates, have negatively impacted Big Lots, as its core customers have reduced their spending on home and seasonal products, which account for a significant portion of the company's revenue," Big Lots stated in a news release."

Big Lots faces intense competition from other discounters, including Home Depot, Lowe's, and Wayfair, which specialize in home goods or offer a wide range of products.

According to Neil Saunders, managing director of GlobalData, Big Lots is not always a good value for money. While many of the items it sells are not high-end and are not drastically expensive, equivalents can often be found much cheaper at other stores, including Walmart.

"The assortment is very jumbled and muddled, which is partly a function of the way the business operates, according to Saunders. However, there is far too much choice and not nearly enough treasure for consumers to be enticed by. This creates an unsatisfactory shopping experience, especially compared to other players operating in the discount space, such as off-price retailers."

The bankruptcy process requires Big Lots to conduct a court-supervised auction for its business. If another buyer makes a higher bid than Nexus's offer, Big Lots could go to that buyer instead.

Big Lots has appointed A&G Real Estate Partners as its real estate advisor and Kirkland & Ellis as the legal representative for Nexus.