Sports Authority was the largest sporting-goods chain in America, and in 2016 it went to the wall in stages: Chapter 11 in March, conversion to a Chapter 7 liquidation by summer, and every store dark by the end of August. The first store opened in Fort Lauderdale, Florida in November 1987, built by Jack Smith — a Herman’s World of Sporting Goods veteran — on the warehouse-superstore logic then sweeping retail: cavernous boxes, deep inventory, low prices, everything from running shoes to kayaks under one roof. It worked well enough that Kmart bought the fledgling chain in 1990 for about $75 million, ran it, then spun it back out; by its 2015 peak the company operated 463 stores across 45 states and Puerto Rico, with revenue around $3 billion.
What killed it was not consumer taste but a balance sheet. In 2006 the private-equity firm Leonard Green & Partners took Sports Authority private in a roughly $1.3 billion leveraged buyout — a deal in which the debt used to buy the company was loaded onto the company itself. For the next decade that debt, about $1 billion of it, was the chain’s gravity: every dollar of interest was a dollar not spent on store refreshes, e-commerce, or price. Meanwhile Dick’s Sporting Goods, a rival of roughly equal size a decade earlier, sprinted ahead to some $7 billion in sales, Amazon ate the price-sensitive middle, and Nike and Under Armour increasingly sold straight to the customer. Sports Authority, immobilized by its own capital structure, could not answer.
The end was orderly and total. After missing a roughly $20 million interest payment in January 2016, the company filed for Chapter 11 in Delaware on March 2, planning to close about 140 stores. No buyer would take the rest as a going concern; creditors moved to convert the case to a Chapter 7 liquidation, and in May the chain agreed to liquidate everything. Dick’s bought the brand name and customer data at the bankruptcy auction for $15 million — the marketing carcass, not the business — and the Sports Authority name limped on as little more than a logo and, for a while, the name on a Denver football stadium.
What was lost was roughly 14,000 jobs and a category killer that, on the merits of its stores, had no obvious reason to die. The lesson is the recurring one of this encyclopedia: a healthy, scaled retailer can be perfectly capable of competing and still be financially engineered into a corner from which competing is impossible.
Payless ShoeSource was, by store count, one of the largest footwear retailers the world has ever seen, and in 2019 it liquidated all of its North American stores — about 2,500 of them — in the largest retail liquidation by location count up to that point, costing roughly 16,000 people their jobs. The chain was founded in 1956 in Topeka, Kansas, by cousins Louis and Shaol Pozez, on a simple, durable idea: self-service shoes. Strip out the commissioned salesman and the back-room stockroom, put the boxes out on open racks where customers could try on and pick for themselves, and sell at prices the department stores could not touch. It was the warehouse-club logic applied to footwear a generation early, and it scaled enormously — to roughly 4,400 stores in more than 30 countries at its mid-2000s peak.
The chain did not die of a bad idea or a vanished customer; America still buys cheap shoes by the hundred million pairs. It died of debt and the internet, in that order. In 2012, the parent company Collective Brands was broken up, and Payless was taken private by the private-equity firms Golden Gate Capital and Blum Capital Partners. The buyout left Payless carrying heavy debt at exactly the moment Amazon and a thousand cheap-shoe websites were teaching its customers that they did not need to drive to a strip mall to buy a $15 pair of flats. The chain entered its first Chapter 11 in April 2017 with about $838 million in debt, shed roughly $435 million and some 700 to 900 stores, and emerged smaller but not saved.
It was not enough. Less than two years later, on February 18, 2019, Payless filed for bankruptcy a second time — and this time there was no reorganization, only the exits. The company announced it would liquidate all of its roughly 2,500 stores in the United States and Puerto Rico, beginning closing sales almost immediately. New owners would relaunch Payless as an online retailer and a smaller store operation in 2020, but the great fleet of self-service shoe stores — the ones in every American strip mall, the ones a generation bought back-to-school sneakers in — was gone, along with about 16,000 jobs in a workforce disproportionately part-time, low-wage, and easy to cut. The mechanism was the now-familiar one: a leveraged buyout strapped debt to a chain that needed every dollar to fight e-commerce, and the debt won.
Linens ‘n Things was the big-box home-goods chain that spent its entire existence as the second-place finisher to Bed Bath & Beyond, and in 2008 the second-place finisher went out of business entirely. Founded in 1975 by Eugene Kalkin in West Orange, New Jersey, from seven stores salvaged out of a bankruptcy, it grew into a national superstore chain selling sheets, towels, cookware, and the thousand small objects of the American household. At its 2006 peak it ran roughly 589 stores across 47 U.S. states and six Canadian provinces, with some 7,300 employees. It was a real business with a real customer — but it was always the alternative, the store you went to if you did not go to Bed Bath & Beyond first.
Being a solid number two is a survivable condition right up until someone adds debt and a recession. In February 2006 the private-equity firm Apollo Management took Linens ‘n Things private in a leveraged buyout valued at about $1.3 billion, paying $28 a share and loading the acquisition debt onto the company. The structure assumed that the chain’s cash flow would comfortably cover the interest. For a year or two it might have. Then the U.S. housing market cracked, the financial crisis arrived, and consumer spending on exactly the discretionary home goods Linens ‘n Things sold fell off a shelf — at the precise moment the company had the least financial slack to withstand it. A chain that might have weathered the downturn debt-free could not weather it owing more than a billion dollars.
The end came fast and complete. On May 2, 2008, Linens ‘n Things filed for Chapter 11 and announced it would close about 120 stores. The reorganization never took: as credit markets froze, lenders refused to finance a turnaround, and by October the company moved to liquidate the remaining stores, with the going-out-of-business sales run by asset-recovery firms Gordon Brothers and Hilco. Every physical store closed. The name, though, did not die — it was bought and relaunched as an online-only brand, a zombie marquee on a website with no stores behind it.
What was lost was roughly 7,300 jobs and one of the two pillars of the big-box home-goods category, removed not by a failure of the format — Bed Bath & Beyond would carry on for another fifteen years — but by the collision of a leveraged buyout with a recession that made the debt unpayable.
Gymboree was the children’s-apparel chain whose smocked dresses and matching sibling outfits filled American malls for decades, and on January 17, 2019 it filed for Chapter 11 bankruptcy for the second time in two years and began closing every store. Founded in 1976 by Joan Barnes — first as a parent-and-child play-and-music business, with the retail clothing chain following in 1986 — Gymboree Group grew into a portfolio of roughly 900 stores across three nameplates: the flagship Gymboree, the upscale Janie and Jack, and the value-priced Crazy 8. It clothed a generation of toddlers in coordinated, durable, unmistakably “Gymboree” outfits, and for a long time it did so profitably. What killed it was not the merchandise and not, in the first instance, the market. It was a debt load assembled in a boardroom in 2010, when the business itself was healthy.
The mechanism is the leveraged buyout, the recurring villain of this encyclopedia. In 2010 the private-equity firm Bain Capital took Gymboree private for about $1.8 billion, financing the purchase with roughly $1 billion in new borrowing piled onto the company’s own balance sheet. A retailer that had been comfortably profitable now had to service a debt it had not chosen, and it had to do so exactly as the children’s-apparel market turned against it — as parents shifted spending to discounters like Walmart and Target and to Amazon, and as the per-outfit premium Gymboree commanded grew harder to justify. The interest payments were a fixed cost that grew while the margin that was supposed to cover them shrank. By 2017 the company could not service roughly $1.4 billion in debt, and it filed for Chapter 11 in June of that year.
That first bankruptcy was the LBO playbook’s standard intermission: shed 380 of about 1,280 stores, cut the debt, emerge, and try again. It did not work. Eighteen months later, in January 2019, Gymboree filed a second time and this time chose liquidation, winding down roughly 900 Gymboree, Gymboree Outlet, and Crazy 8 stores. The two healthy assets were sold off in a March 2019 court auction: Gap Inc. bought the upscale Janie and Jack brand for $35 million, and The Children’s Place bought the Gymboree and Crazy 8 names and intellectual property for $76 million, relaunching Gymboree as a digital sub-brand. The stores — and the jobs in them — were gone. A chain that survived 43 years did not die of bad clothes or even, simply, of the internet. It died of the debt a financier strapped to its back while it was still standing.