The final blow came last week when a new report revealed that PE- and hedge fund-owned retailers have laid off almost 600,000 employees and caused more than 1.3 million direct and indirect job losses over the last decade. And this is all while more than 1 million workers are employed by PE- and hedge fund-owned retailers in what's now the longest economic bull cycle in history. Quite simply, that's not a good look for a PE industry that claims to be a job creator that fuels the economy.
But is PE entirely to blame for the struggles? After all, Amazon (and the rest of Big Tech) has recently drawn increased scrutiny from government regulators for driving others out of business. And it's not like many PE-backed companies were doing all that great before PE got involved. Would the likes of Toys R Us, Payless and Shopko still be around if it weren't for private equity? The answer isn't always simple.
1. The Pirate Equity reportDubbed "Pirate Equity: How Wall Street Firms are Pillaging American Retail," the report from the Center for Popular Democracy and the Private Equity Stakeholder Project provides an array of sobering numbers about the effects of PE-backed retail failures. And it puts a human face on some of the layoffs of those who worked at Toys R Us, Gymboree, Sears and other companies that private investors loaded with debt, took through Chapter 11 bankruptcy and ultimately shut down altogether.
It's a trend that doesn't figure to stop any time soon, putting some 1 million workers, many of whom are already living near the poverty line, at risk of losing their jobs at hedge fund- and PE-backed retail companies, per the report. All this while CEO pay at PE firms and hedge funds continues to skyrocket and firms protect themselves from losing money by using tax loopholes, dividend recaps and sale-leasebacks. It's enough to give pause to even the most ardent Ayn Rand-loving capitalist.
But it's not entirely fair to pin 100% of the blame for retail's failures on the PE world.
The retail industry as a whole is struggling, including publicly traded businesses like Nordstrom, JC Penney, Macy's and a host of others. That's in large part thanks to Amazon, which looks to be one of the subjects of a new US Department of Justice investigation that will look at possible monopolistic, anti-competitive practices at tech behemoths. The European Union's Competition Commission has also launched an antitrust inquiry into how Amazon uses data to give itself an advantage over other sellers on its site, among other questionable practices.
In other words, the problem isn't so simple, especially considering that former PE-backed retailers such as BJ's Wholesale, Burlington Stores and Chewy.com have done well since being taken public. But regardless, the recent wave of attention could put PE at risk if either Warren or Sanders wins the White House in 2020.