How Private Equity Bankrupted American Retail

Read the bankruptcy dockets of Big Lots, Sears, Joann Fabrics, Red Lobster, Spirit Airlines, and the Royal Bank of Scotland side by side and the resemblance is uncanny. The companies operate in different industries — closeout retail, department stores, fabrics, casual dining, an ultra-low-cost airline, and one of the oldest banks in Europe — but the financial structure of their failures is almost a single document with the names changed.

The shape of the playbook is this. A private equity firm buys a company that owns valuable physical assets — usually real estate. The firm finances the acquisition mostly with debt issued in the operating company's name, contributing 20-30 cents of equity for every dollar of purchase price. The first move after closing is almost always to monetize the real estate through a sale-leaseback. The owned stores or distribution centers are sold to a separate real estate buyer for cash; that cash flows back to the operating company; the operating company pays it out to the PE firm as a dividend or uses it to retire some of the LBO debt. The buildings remain in place, the employees keep showing up, and the trucks keep loading. The difference is that the operating company now writes a rent check every month for the next twenty-five years to a building it used to own.

This is the trade that, more than any other single financial structure, kills American retailers and the operating businesses adjacent to them. Big Lots executed a $725 million sale-leaseback of 25 properties in 2020 — and was in Chapter 11 by 2024. Red Lobster's owners executed a $1.5 billion sale-leaseback in 2014 — and was in Chapter 11 by 2024. Sears under Eddie Lampert sold its best real estate into a separate Lampert-controlled REIT called Seritage Growth Properties in 2015 — and was in Chapter 11 by 2018. Joann had no single landmark sale-leaseback but executed repeated dividend recapitalizations between 2011 and 2024 that performed the same function — extracting cash from the operating company and replacing it with debt — and was in Chapter 11 twice, in 2024 and again in 2025.

The argument the private equity industry makes in defense of these structures is that real estate locked up inside an operating company is dead capital. Selling it and recycling the proceeds into the business — paying down debt, modernizing stores, investing in technology — should improve returns. In practice almost none of the cash from these transactions has been recycled into the business. Almost all of it has gone to dividends, fees, and debt service.

The argument the labor side makes is that the workers absorb the loss. When Big Lots filed Chapter 11 in September 2024, approximately 30,000 employees were affected. When Joann filed for the second time in January 2025 and proceeded to liquidate, all 800-plus stores closed and the entire workforce was laid off. When Spirit Airlines filed its second Chapter 11 in May 2026, approximately 17,000 jobs were lost. The aggregate U.S. job losses from retail and adjacent-industry private-equity-driven bankruptcies between 2017 and 2026 — Toys R Us, Payless ShoeSource, Sears, Tuesday Morning, Bed Bath & Beyond, Joann, Big Lots, and Spirit — comfortably exceed two hundred thousand.

The defenders of the model point out, correctly, that retail has structural headwinds — Amazon, demographic changes, the pandemic, e-commerce shifts — that would have damaged these companies even without leverage. This is true. But the dockets are clear that in case after case, the operating business could have absorbed the operating headwinds; what it could not absorb was the rent payments and interest expense that the PE structure layered on top.

The Royal Bank of Scotland is the outlier in this collection — a 1727-vintage Scottish bank rather than an American retailer — but the failure mode rhymes. Fred Goodwin's £49 billion acquisition of ABN AMRO in 2007 was a leveraged transaction of a different kind, financed at the bank-balance-sheet level rather than via a PE fund. It cost UK taxpayers £45 billion and counting. The discipline that should have been imposed by the institutional creditors of a bank turned out to be no more effective than the discipline imposed by the institutional creditors of Toys R Us or Sears: the deal closed because the deal was profitable to the people closing it, regardless of whether the resulting entity could service its obligations.

The legal and political response to this pattern has been slow. The Federal Trade Commission and the U.S. Senate Finance Committee have both opened inquiries into PE-driven retail bankruptcies; the Inflation Reduction Act of 2022 included a small surtax on stock buybacks but nothing addressed at sale-leasebacks or dividend recaps. The Department of Labor under the Biden administration issued one fiduciary-duty rule that briefly threatened PE access to retirement-account capital before being vacated by the Fifth Circuit in 2024. The structural incentives that produce these bankruptcies remain entirely intact in 2026.

The six films in this collection — Big Lots, Sears, Joann Fabrics, Red Lobster, Spirit Airlines, and RBS — are the bankruptcy-court receipts.