When private equity firms and hedge funds get their controlling hands on big companies, bad things happen. This is mostly because private equity firms and hedge funds are predominantly interested in making money for investors—and arguably they aren’t really that good at that either. The past couple of years has seen a ton of big-box retail stores, under the new management of hedge funds and private equity interests, go bust. The general narrative pushed is that these retail stores cannot compete with the online market that is dominated by companies like Amazon or behemoth big-box stores like Walmart. But even a cursory inspection of these cases shows bad management and the employment of business practices incongruous with the retail industry.
The Intercept reports that Bain Capital’s Gymboree Group, Inc., a kids clothing retail outlet, after filing and pulling out of one bankruptcy, has found itself in a second bankruptcy. And while the first bankruptcy was alleged to include severance packages for employees, the new bankruptcy filing included no severance. But don’t you worry: According to the report, Mera Chung, a vice president of design for Gymboree Group, Inc.’s Crazy 8 subsidiary, knows that there were a handful of executives getting big fat golden paychecks for failing to not bankrupt the company.
A few weeks earlier, she had learned about a confidential deal between the board and eight members of Gymboree’s executive leadership team. According to Chung, those executives received paper checks with a “retention bonus” equal in value to their severance payouts. The board, which includes representatives from hedge funds and private equity firms, told the executives to deposit the checks immediately. Bankruptcy experts often call this type of payment a “disguised severance.”
Chung has already reported her claims to bankruptcy officials, and tells the Intercept that not only did Gymboree carry out this shady payout, but it also tried to hide it. According to Chung, Gymboree C-suite executives filed a false claim in bankruptcy court, saying that only $270,000 in “discretionary bonus payments” were paid out before the filing. Chung says that figure is more like $2.1 million. Officials say that Goldman Sachs is the first creditor in line to get money back during the bankruptcy, so those thousands of workers are all shit out of luck. I wonder how many of those executives will end up landing at a place like … Goldman Sachs?
It is during the bankruptcy period that things always become that much more clear. Sears, for example, made it very clear that giving out $25 million in bonuses to executives was imperative to handling the bankruptcy process, while at the same time pleading poverty to all of the workers it then screwed out of severance packages. Toys ‘R’ Us, which closed last summer after being backed by the private equity firms of KKR and Bain Capital and real estate investor Vornado Realty Trust, did much the same, offering up $16 million in bonuses for executives that failed.
In the end, the past few years have seen The Limited, Wet Seal, Eastern Outfitters, BCBG Max Azria, Vanity, Hhgregg, RadioShack, Gordmans, Gander Mountain, Payless ShoeSource, Rue21, Gymboree, Cornerstone Apparel, True Religion Apparel, Alfred Angelo, Perfumania, Vitamin World, Aerosoles, Sears, and Toys ‘R’ Us all file for bankruptcy protection after having overinflated balance sheets, laying off tens of thousands of workers, and making hand-wringing declarations that there was nothing to be done.