We really need a ban on leveraged buyouts where the leverage becomes the responsibility of the purchased entity. You shouldn't be able to borrow money to buy a company, then transfer the debt used to buy the company on to the company itself. Any theoretical arguments about why this is OK or a good idea should fall silent against the repeated observations of what happens in practice and the observable incentive structure created.
Yes that interest shouldn't be tax deductable. The limit on share buybacks being expensible needs to return at least for these leverages buyouts. And debt aquired for leveraged buyouts and debt used for share repurchase needs to be moved far down the bankruptcy priority tree.
This is a private transaction, for the profit of the banks providing the money to perform the buyout.
The banks are betting that the company/brand, once stripped of any valuable assets and being stretched to painful profitability at the cost of its reputation, will last long enough, with enough assets left at bankruptcy, that their high-interest, high-priority debt will be more than repaid.
If the private equity buys a firm in a leveraged buyout, sells off all its assets in a week, and shuts down immediately, it's the banks that get stiffed; The banks aren't idiots.
If you for some reason prioritize long-term survival & good/service provision of the ailing business, you need to take a bite out of the banks funding private equity takeovers that hit chapter 11 ("reorganization bankruptcy") or deprioritize their debt in chapter 7 ("liquidation bankruptcy") to disincentivize them providing funds.
There are certain shenanigans with private equity related to valuation and compensation ("My company is worth $1000, so I'm awarding myself 50% shares as part of a tax exempt retirement plan") that should be not just outlawed, but which should cause the IRS to send a CPA to go back and slap them in the face with a wet trout for having the fucking gall.
The cycle of enshittification that private equity often participates in, is less a problem with the fact of private equity, and more a problem with the giant piles of money in the finance industry growing much larger and taller than the economy they are theoretically structurally resting on. A problem with financialization and wealth inequality itself, with the system designed for upwards wealth redistribution, trying to transfer the last 10% of the world's money (which the poor are using as their medium of exchange) into the same dragon's hoard that has the rest.
Who is the lender in this deal? Why would they agree to this transfer of debt? Like...if I buy a house with 20% down and then create an LLC and want to transfer the house to the LLC, the bank is not going to approve. Because there's no assets in the LLC to come after in the case of the mortgage being underwater.
Many things far more complicated than this have been made illegal.
And yes, people will try to wiggle around it. That's what regulatory agencies are for. Yeah, they don't 100% work. Believe me, you're unlikely to out-cynic me.
A firm can be capitalized by debt or equity. They can have a public offering to and sell share to retire debt. They can issue bonds and use the money to buy back shares. There shouldn't be a moral component to this.
That being said, it seems criminal to take an enormous management fee while sending a company into bankruptcy.
Our Best Buy is great. Usually pretty good stock and good variety. People there seem to be pretty nice as well. Bought a laptop there a few weeks ago. The one I wanted was in stock, they had a good price and gave me a fair trade in for my old one. Wife loves the place too as she can try on all their phone cases before she buys. It’s great to have a local option so that is one of the reasons I also choose to support them.
Best Buy price matches Amazon, I get what I want same day, no need to pay a monthly fee for "free" shipping. I used to browse Amazon for reviews (hoping at least some weren't fake) then buy in the real world in person, but now that Amazon is replacing access to reviews with AI summaries (there's a login barrier to see more than the first few) there's no need to go there at all.
I stopped patronizing Best Buy when their store phone numbers started going to a corporate call center that couldn't tell me if something I was looking for was in stock at the store.
I have a similar experience at my local Best Buy stores. I buy most of my electronics from there because I can't trust Amazon to give me a product that isn't counterfeit or defective to some degree. In general I largely prefer to buy things in person these days than have it shipped. No more Prime.
I've had a similar experience with the Best Buy in my area. They also seem to be really good about keeping things in stock that people actually buy (seems like a basic concept, but you would be surprised).
Also they're typically right on par with Amazon's pricing and no need to wait for it to ship, just a quick trip there and back (although they usually get me buying something I didn't go there for) >:(
Fabrics? I'm old enough to remember my mom making clothes from scratch, because buying fabric by the yard and sewing from patterns was cheaper than buying ready made clothes. That no longer being the case, how many people less than 50 years old do you know that can even operate a sewing machine? Totally different product category than tech gadgets.
Crafters, cosplayers, artists, designers, decorators, parents working on their child's 'school project', etc., all used JoAnns. And the ladies who worked there (it was mostly women) were usually very helpful in helping you figure out how much material you needed for a project. It was as useful as Home Depot is to DIY home improvement projects.
Joanns died b/c of two things - they stocked items no one really wanted, and they doubled down on that by opening way too many stores.
With a focus on fabric and yarn, they would still be here - maybe. Handcock Fabrics went the same way and they died. Hopefully, someone will take a clue and start a new focused venture. Buying fabric over the web is horrendous.
This wasn’t my experience, if anything, they often didn’t have stock in the store and told us to go online to buy the item.
And 800+ stores doesn’t seem like over saturation, it looks like there are more BestBuy and Hobby Lobby stores than that and they both sell stuff that most folks would feel equally comfortable buying online. Where, as you rightly stated, buying fabric online is a non starter for most folks.
My experience was similar to the author, bare shelves and 1 or 2 folks around to help customers…it honestly felt more like purposeful neglect on the part of the owners.
> The list of PE-owned retail chains that have filed for bankruptcy or liquidated includes Toys “R” Us, Payless ShoeSource, Sports Authority, Gymboree, rue21, The Limited, Barneys New York, and many others.
Once again, you can't lump all PE groups into one all cohorts. All of these companies were bought out by Large-cap PE which is notoriously predatory. They may have an overwhelming amount of the drypowder, but in terms of absolutely number of PE groups, there are far more operating in the middle and lower middle market who don't do this.
As the article says, leveraged buyouts of retail end in bankruptcy only 41% of the time, and most of those bankruptcies are presumably not a total loss for the banks. So it's just a matter of pricing the loans to ensure the successes cover the losses.
(Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
> (Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
The way they limit their own exposure to risk seems to increase the odds of the targeted business completely failing, though. I think that's the part people have a problem with.
Agreed. I'm sure there's edge cases I don't know about, but in general I think it would be better to simply not allow leveraged buyouts and let businesses that would fail without the buyout fail.
Best Buy isn't long for this world. You can tell from their mobile app, which is extremely slow and has terrible UX. It's a bloated store coasting off of its former success and it's going to slowly suffer the same fate as Fry's if they don't get smart. Best Buy has a few things propping it up right now: PC repair services, home installation, quick availability of replacement items (SSD dies? Get one right now, rather than waiting 3+ days for Amazon), and in-store demos (sound systems and the like). None of these constitute a moat, and these four spaces are already full of competition. Everything else is just warehousing for the eventual liquidation. They should realize that their brand has become a luxury, and they should start acting more like the Apple store, selling fewer items and trying to develop their own brand more.
But really, the app is terrible. And an app is table stakes these days. It's just remarkable how bad it is.
Table stakes for which cohort(s) of people? Do you put an app on your personal device for every retailer you do any business with? Guess I'm just old and out of touch, but I would not spend any time considering putting the best buy or mcdonalds app or whatever on my personal device. Why would I?
If I'm going to a brick-and-mortar store, if I go online at all, it's only to check stock/availability or look up a product's specs/foibles. No, $STORE, I don't want to create an account. No, I don't want your app. A web browser should be all I need.
> Amazon is very good at bits but has repeatedly failed at atoms.
This idea of bits vs atoms was stolen straight from the CEO of Uber, Travis Kalanick. During the infamous Silicon-Valley-TV-Show-esque Las Vegas company offsite, one of his big talks was about how Uber had to not only deal with bits, ie. the virtual world, but also atoms, ie. the real world. That made it a bigger challenge than all the other companies like Google, Facebook, etc where they could dictate their own rules since they controlled everything, but Uber didn't have that luxury.
Counterpoint: I thought it was a useful analysis — I was very disappointed when the local Joann's closed and this added a bunch of context I would not have had otherwise.
But Best Buy is a shadow of its former self. I've stopped bothering to go there at all because they never have what I need. Even when I was shopping for a tablet.
I've noticed that there seems to be big inconsistencies from location to location, at least around me. One Best Buy never has anything on the shelves, doesn't have much of their higher-end stuff at all, and constantly looks like they just got robbed.
But 15 minutes away there's another Best Buy that has a dedicated PC hardware section that almost reminds me of going to Fry's back in the day. I was flabbergasted the first time I walked in there, I almost thought I'd been mistaken and entered a different store.
Are you in the bay area, by chance? I suspect the opening of MicroCenter will mean almost no one around here even thinks to try BestBuy for component hardware.
That said, I purchased some peripherals at BB a few months ago because they had what I needed in stock and the price was better than Logitech and the same as Amazon.
On the other hand, I can go to my local Best Buy and pick up an nvme drive. Look at the box, make sure it is factory sealed and not counterfeit. Only after I’ve decided it’s legit I can hand over approximately the same amount of money Amazon would have charged me.
> make sure it is factory sealed and not counterfeit
Hah. I bought an Apple Pencil from BB. Shrink-wrapped in the box. I get home, the battery won't charge. I figured out from the S/N that someone had bought a new pencil, put their dead one in the box, shrink-wrapped it, returned it, BB put it back into stock, and I ended up with it.
Fortunately, BB replaced it for me, but I've never had this issue with a single Amazon item I've purchased and I've done a lot more shopping from Amazon than BB.
Counterpoint: People do this on Amazon all the time. One time I ordered a kick drum stand on Amazon. All I got was the foot of the stand and a brick in the box.
If by roughly the same you mean 10% to 100% more (think cables for high markup) and I have to go to the store instead of having it come to me. With much worse selection. Then yes. That's an amazing experience!
I mean, yeah, sure if you view having to go to the store as a negative, then you would prefer to order online and have it brought to you.
After years (my whole adolescent and adult life, more or less) of online shopping, I find that it's actually quite refreshing to go to the store, find the product I need, and purchase it. I have it immediately, I got to handle a demo unit and get a feel for it. If I need to return it, I go back to the same store and get my money back the same day.
There are pros and cons to both, for sure, but these days I find I'm valuing the offline experience more and more.
Nearly every time I've bought cheap USB-C cables off Amazon they didn't perform as advertised. The few times I bought name-brand ones they looked different from the ones I've bought at in-person stores and once again failed to perform as advertised (likely counterfeit).
I kinda feel like Best Buy is the same as it's always been and our baseline expectations of how much a store should have skyrocketed. In 2006 I didn't shop for electronics by doing intensive online research to find the specific brand and model I want; I drove to Best Buy and picked whatever made the most sense out of what they had.
At least the ones in my area are substantially worse than they used to be. They don't have a lot of items they used to carry, and the ones they do carry have a much more limited selection than they used to.
But perhaps, as another commenter mentioned, this varies a lot depending on the store you're in?
Regardless, at least for my needs, Best Buy has nearly nothing for me. That didn't used to be true.
The store closest to me repurposed about half of its floor space as pretty much warehouse space for online orders. They even repurposed half the doors for pickup/return lockers.
I've bought a few things from the in the last few years and their prices and service are pretty solid. You can even get some great deals on house brands or open box stuff.
We really need a ban on leveraged buyouts where the leverage becomes the responsibility of the purchased entity. You shouldn't be able to borrow money to buy a company, then transfer the debt used to buy the company on to the company itself. Any theoretical arguments about why this is OK or a good idea should fall silent against the repeated observations of what happens in practice and the observable incentive structure created.
Yes that interest shouldn't be tax deductable. The limit on share buybacks being expensible needs to return at least for these leverages buyouts. And debt aquired for leveraged buyouts and debt used for share repurchase needs to be moved far down the bankruptcy priority tree.
Leveraged buyouts (vulture capital) is almost always an example of ... well, vultures.
The company is already walking dead; they're just feasting on the corpse. Left alone they'd peter out faster.
TFA explains that's not actually the case, not just an assertion, but actual studies that backed it up.
Except that Jo-Ann Fabrics was most definitely not walking dead when it was LBO'ed. I'd call this one vampire capitalism rather than vulture.
This is a private transaction, for the profit of the banks providing the money to perform the buyout.
The banks are betting that the company/brand, once stripped of any valuable assets and being stretched to painful profitability at the cost of its reputation, will last long enough, with enough assets left at bankruptcy, that their high-interest, high-priority debt will be more than repaid.
If the private equity buys a firm in a leveraged buyout, sells off all its assets in a week, and shuts down immediately, it's the banks that get stiffed; The banks aren't idiots.
If you for some reason prioritize long-term survival & good/service provision of the ailing business, you need to take a bite out of the banks funding private equity takeovers that hit chapter 11 ("reorganization bankruptcy") or deprioritize their debt in chapter 7 ("liquidation bankruptcy") to disincentivize them providing funds.
There are certain shenanigans with private equity related to valuation and compensation ("My company is worth $1000, so I'm awarding myself 50% shares as part of a tax exempt retirement plan") that should be not just outlawed, but which should cause the IRS to send a CPA to go back and slap them in the face with a wet trout for having the fucking gall.
The cycle of enshittification that private equity often participates in, is less a problem with the fact of private equity, and more a problem with the giant piles of money in the finance industry growing much larger and taller than the economy they are theoretically structurally resting on. A problem with financialization and wealth inequality itself, with the system designed for upwards wealth redistribution, trying to transfer the last 10% of the world's money (which the poor are using as their medium of exchange) into the same dragon's hoard that has the rest.
Who is the lender in this deal? Why would they agree to this transfer of debt? Like...if I buy a house with 20% down and then create an LLC and want to transfer the house to the LLC, the bank is not going to approve. Because there's no assets in the LLC to come after in the case of the mortgage being underwater.
> You shouldn't be able to borrow money to buy a company, then transfer the debt used to buy the company on to the company itself.
Why not and how would you stop? It’s no different than a company issuing bonds to buy back its own equity.
I agree that it’s contributing to the enshitification of many end consumer industries, but I’m not sure what such a “ban” would look like it practice.
Many things far more complicated than this have been made illegal.
And yes, people will try to wiggle around it. That's what regulatory agencies are for. Yeah, they don't 100% work. Believe me, you're unlikely to out-cynic me.
It should still be illegal.
> It’s no different than a company issuing bonds to buy back its own equity.
Which was illegal until 1982 and could be made illegal again.
A firm can be capitalized by debt or equity. They can have a public offering to and sell share to retire debt. They can issue bonds and use the money to buy back shares. There shouldn't be a moral component to this.
That being said, it seems criminal to take an enormous management fee while sending a company into bankruptcy.
It really does feel like the onus is on the original lender (who owns the debt) to police how it gets transferred.
Our Best Buy is great. Usually pretty good stock and good variety. People there seem to be pretty nice as well. Bought a laptop there a few weeks ago. The one I wanted was in stock, they had a good price and gave me a fair trade in for my old one. Wife loves the place too as she can try on all their phone cases before she buys. It’s great to have a local option so that is one of the reasons I also choose to support them.
Best Buy price matches Amazon, I get what I want same day, no need to pay a monthly fee for "free" shipping. I used to browse Amazon for reviews (hoping at least some weren't fake) then buy in the real world in person, but now that Amazon is replacing access to reviews with AI summaries (there's a login barrier to see more than the first few) there's no need to go there at all.
I stopped patronizing Best Buy when their store phone numbers started going to a corporate call center that couldn't tell me if something I was looking for was in stock at the store.
I have a similar experience at my local Best Buy stores. I buy most of my electronics from there because I can't trust Amazon to give me a product that isn't counterfeit or defective to some degree. In general I largely prefer to buy things in person these days than have it shipped. No more Prime.
I've had a similar experience with the Best Buy in my area. They also seem to be really good about keeping things in stock that people actually buy (seems like a basic concept, but you would be surprised).
Also they're typically right on par with Amazon's pricing and no need to wait for it to ship, just a quick trip there and back (although they usually get me buying something I didn't go there for) >:(
>> although they usually get me buying something I didn't go there for
Me too but I enjoy browsing through the store so it’s (sometimes not so much) cheap entertainment.
I find it hard to believe this is the real timeline when Best Buy is better than Amazon and New Egg. But I prefer Best Buy to both those now.
Fabrics? I'm old enough to remember my mom making clothes from scratch, because buying fabric by the yard and sewing from patterns was cheaper than buying ready made clothes. That no longer being the case, how many people less than 50 years old do you know that can even operate a sewing machine? Totally different product category than tech gadgets.
Crafters, cosplayers, artists, designers, decorators, parents working on their child's 'school project', etc., all used JoAnns. And the ladies who worked there (it was mostly women) were usually very helpful in helping you figure out how much material you needed for a project. It was as useful as Home Depot is to DIY home improvement projects.
Joann Fabrics had decent foot traffic and the margins were good. My kid and I averaged probably 3 trips a month.
They sold a whole lot more than fabric.
Joanns died b/c of two things - they stocked items no one really wanted, and they doubled down on that by opening way too many stores.
With a focus on fabric and yarn, they would still be here - maybe. Handcock Fabrics went the same way and they died. Hopefully, someone will take a clue and start a new focused venture. Buying fabric over the web is horrendous.
This wasn’t my experience, if anything, they often didn’t have stock in the store and told us to go online to buy the item.
And 800+ stores doesn’t seem like over saturation, it looks like there are more BestBuy and Hobby Lobby stores than that and they both sell stuff that most folks would feel equally comfortable buying online. Where, as you rightly stated, buying fabric online is a non starter for most folks.
My experience was similar to the author, bare shelves and 1 or 2 folks around to help customers…it honestly felt more like purposeful neglect on the part of the owners.
> The list of PE-owned retail chains that have filed for bankruptcy or liquidated includes Toys “R” Us, Payless ShoeSource, Sports Authority, Gymboree, rue21, The Limited, Barneys New York, and many others.
Once again, you can't lump all PE groups into one all cohorts. All of these companies were bought out by Large-cap PE which is notoriously predatory. They may have an overwhelming amount of the drypowder, but in terms of absolutely number of PE groups, there are far more operating in the middle and lower middle market who don't do this.
Surely there is more to the story. Why would big banks lend in these situations if they always end in bankruptcy?
As the article says, leveraged buyouts of retail end in bankruptcy only 41% of the time, and most of those bankruptcies are presumably not a total loss for the banks. So it's just a matter of pricing the loans to ensure the successes cover the losses.
(Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
> (Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
The way they limit their own exposure to risk seems to increase the odds of the targeted business completely failing, though. I think that's the part people have a problem with.
Agreed. I'm sure there's edge cases I don't know about, but in general I think it would be better to simply not allow leveraged buyouts and let businesses that would fail without the buyout fail.
What kind of rates do you need to charge to cover 41% bankrupcty odds? Home lending would fall at an order of magnitude lower rate.
Best Buy isn't long for this world. You can tell from their mobile app, which is extremely slow and has terrible UX. It's a bloated store coasting off of its former success and it's going to slowly suffer the same fate as Fry's if they don't get smart. Best Buy has a few things propping it up right now: PC repair services, home installation, quick availability of replacement items (SSD dies? Get one right now, rather than waiting 3+ days for Amazon), and in-store demos (sound systems and the like). None of these constitute a moat, and these four spaces are already full of competition. Everything else is just warehousing for the eventual liquidation. They should realize that their brand has become a luxury, and they should start acting more like the Apple store, selling fewer items and trying to develop their own brand more.
But really, the app is terrible. And an app is table stakes these days. It's just remarkable how bad it is.
Table stakes for which cohort(s) of people? Do you put an app on your personal device for every retailer you do any business with? Guess I'm just old and out of touch, but I would not spend any time considering putting the best buy or mcdonalds app or whatever on my personal device. Why would I?
If I'm going to a brick-and-mortar store, if I go online at all, it's only to check stock/availability or look up a product's specs/foibles. No, $STORE, I don't want to create an account. No, I don't want your app. A web browser should be all I need.
> Amazon is very good at bits but has repeatedly failed at atoms.
This idea of bits vs atoms was stolen straight from the CEO of Uber, Travis Kalanick. During the infamous Silicon-Valley-TV-Show-esque Las Vegas company offsite, one of his big talks was about how Uber had to not only deal with bits, ie. the virtual world, but also atoms, ie. the real world. That made it a bigger challenge than all the other companies like Google, Facebook, etc where they could dictate their own rules since they controlled everything, but Uber didn't have that luxury.
TLDR: One chain was gutted by private equity vultures, the other wasn't. Don't need an AI-generated slop article to tell me that.
Yep. Allow and reward piracy and plunder and your society gets plundered by pirates.
Counterpoint: I thought it was a useful analysis — I was very disappointed when the local Joann's closed and this added a bunch of context I would not have had otherwise.
But Best Buy is a shadow of its former self. I've stopped bothering to go there at all because they never have what I need. Even when I was shopping for a tablet.
I've noticed that there seems to be big inconsistencies from location to location, at least around me. One Best Buy never has anything on the shelves, doesn't have much of their higher-end stuff at all, and constantly looks like they just got robbed.
But 15 minutes away there's another Best Buy that has a dedicated PC hardware section that almost reminds me of going to Fry's back in the day. I was flabbergasted the first time I walked in there, I almost thought I'd been mistaken and entered a different store.
Are you in the bay area, by chance? I suspect the opening of MicroCenter will mean almost no one around here even thinks to try BestBuy for component hardware.
That said, I purchased some peripherals at BB a few months ago because they had what I needed in stock and the price was better than Logitech and the same as Amazon.
Probably don't need two Best Buys 15 minutes from one another.
On the other hand, I can go to my local Best Buy and pick up an nvme drive. Look at the box, make sure it is factory sealed and not counterfeit. Only after I’ve decided it’s legit I can hand over approximately the same amount of money Amazon would have charged me.
> make sure it is factory sealed and not counterfeit
Hah. I bought an Apple Pencil from BB. Shrink-wrapped in the box. I get home, the battery won't charge. I figured out from the S/N that someone had bought a new pencil, put their dead one in the box, shrink-wrapped it, returned it, BB put it back into stock, and I ended up with it.
Fortunately, BB replaced it for me, but I've never had this issue with a single Amazon item I've purchased and I've done a lot more shopping from Amazon than BB.
Counterpoint: People do this on Amazon all the time. One time I ordered a kick drum stand on Amazon. All I got was the foot of the stand and a brick in the box.
It was supposed to be brand new, not a used item.
If by roughly the same you mean 10% to 100% more (think cables for high markup) and I have to go to the store instead of having it come to me. With much worse selection. Then yes. That's an amazing experience!
I mean, yeah, sure if you view having to go to the store as a negative, then you would prefer to order online and have it brought to you.
After years (my whole adolescent and adult life, more or less) of online shopping, I find that it's actually quite refreshing to go to the store, find the product I need, and purchase it. I have it immediately, I got to handle a demo unit and get a feel for it. If I need to return it, I go back to the same store and get my money back the same day.
There are pros and cons to both, for sure, but these days I find I'm valuing the offline experience more and more.
> think cables for high markup
Nearly every time I've bought cheap USB-C cables off Amazon they didn't perform as advertised. The few times I bought name-brand ones they looked different from the ones I've bought at in-person stores and once again failed to perform as advertised (likely counterfeit).
I avoid Amazon as much as possible these days.
Best Buy price matches Amazon...
Wait until Sandisk compains you didn't buy through an authorized distributor when you go to register or take advantage of the warranty.
It seems pretty good to me, or at least my local one is. Best Buy is in a solid niche between, say, Micro Center and Walmart.
I kinda feel like Best Buy is the same as it's always been and our baseline expectations of how much a store should have skyrocketed. In 2006 I didn't shop for electronics by doing intensive online research to find the specific brand and model I want; I drove to Best Buy and picked whatever made the most sense out of what they had.
At least the ones in my area are substantially worse than they used to be. They don't have a lot of items they used to carry, and the ones they do carry have a much more limited selection than they used to.
But perhaps, as another commenter mentioned, this varies a lot depending on the store you're in?
Regardless, at least for my needs, Best Buy has nearly nothing for me. That didn't used to be true.
Their stores have much more unused floorspace now. CDs and DVDs are mostly gone. Lots of dead space around the phone displays now.
My Best Buy is far more crowded than it used to be. They use the aisles for boxed TV's etc.
The store closest to me repurposed about half of its floor space as pretty much warehouse space for online orders. They even repurposed half the doors for pickup/return lockers.
I've bought a few things from the in the last few years and their prices and service are pretty solid. You can even get some great deals on house brands or open box stuff.