Big Lots’ Vacant Stores Could Be Leased Quickly in Tight Market, Analysts Say

Last month, Big Lots CEO Bruce Thorn told investors the company was "moving quickly and aggressively" to solidify its position "as America's discount home store." Then just a week later, the retailer reported it was closing as many as 40 locations and might have to cease operations.

Columbus, Ohio-based Big Lots, struggling for several years now since the pandemic's end, has a vast brick-and-mortar footprint. Its roughly 1,400 stores occupy about 46.6 million square feet of space. Some or all of that could be up for grabs if the company is forced to file for Chapter 11 bankruptcy protection or, worse-case scenario, has to liquidate.

A Big Lots bankruptcy proceeding at the very least would likely result in some store closings and the renegotiation of and exit from some leases, according to industry analysts. With the U.S. retail vacancy rate so tight, at 4.1%, retail specialists told CoStar News there likely would be new tenants to fill future vacant Big Lots stores, including expansion-minded chains such as T.J. Maxx, HomeGoods, Burlington Stores and Ross Dress for Less, for example. But at least one analyst said Big Lots' locations, many in smaller tertiary markets, may not be snapped up as quickly as Bed Bath & Beyond's empty stores last year, which by and large were located in busier markets.

In a 280-page June 13 securities filing, Big Lots, plagued by mounting losses, warned there was "substantial doubt" about its ability to continue as a going concern. It also said it planned to close 35 to 40 stores this year, while opening three. It made the disclosures seven days after reporting its first-quarter earnings.

"The company is evaluating various alternatives to improve its available liquidity, including but not limited to, lease concessions and deferrals, entering a letter of credit facility, managing its working capital and raising additional capital," Big Lots said in its regulatory filing. "The company is also seeking to further monetize assets, such as its remaining owned real estate property, through outright sale or sale and leaseback opportunities."

On Monday, Big Lots' website had identified about 135 stores in more than two dozen states that the retailer said it was closing — more than triple the number it originally planned to shutter. The most stores are slated to be closed in California, nearly 60. That's followed by a dozen store closings in Washington and one less than that in Arizona. The website said there would be savings of up to 20% off at those locations.

Big Lots did not return multiple emailed requests for comment from CoStar News.

This year a bevy of retailers have already announced plans to close some or all of their stores, including Walgreens, Rite Aid, 99 Cents Only, Macy's, Family Dollar, Express, Rue21, Red Lobster and Stop & Shop. In some cases, the closings follow Chapter 11 filings. So far this year, major U.S. retailers have announced 3,666 store closings and 4,319 store openings for 2024, or 7.1% more closings and 0.5% fewer openings compared to the year-ago period, according Coresight Research.

Big Lots' strategy is to acquire — and sell at bargain prices — closeout items such as furniture, beverages and groceries, specialty foods, candy, snacks, health, beauty and cosmetics, apparel, bedding, small appliances, electronics, home decor, lawn and garden supplies, and seasonal goods.

It was among the retailers — like other home goods and furniture sellers — that saw their sales spike during the pandemic as house-bound Americans feathered their nests. But as COVID cases waned and inflation and interest rates jumped, spending on the chain's larger ticket items slowed. That's been a blow, according to company officials, who recently obtained a $20 million term loan.

"Our overall results have been muted due to our high assortment mix in the home-furnishing categories where even though we've held share, there has been a significant consumer pullback in big-ticket items, particularly within the furniture and patio furniture categories," Thorn said in June.

In its filing, Big Lots said that elevated inflation had created a pullback in consumer spending. To boost sales, company officials said they are taking steps to improve merchandise presentations to highlight its best deals and increase visit frequency, and to drive productivity by pursuing operating expense and capital outlay reductions.

But retail analysts said Big Lots’ problems are deeper than dealing with a bad economy and stem from the poor execution of its concept, not challenging macroeconomic pressures.

"While Big Lots blames its woes on a difficult trading environment, the truth is that its proposition is weak, and it is not always particularly good value for money," Neil Saunders, a retail analyst and managing director of analytics firm GlobalData, told CoStar News in an email. "Many of the items it sells are not high end and are not drastically expensive, but equivalents can often be found much cheaper at stores like Target and Walmart. There is nowhere near enough effort being made to remedy this and other issues."

Amanda Lai, a director at consulting firm McMillanDoolittle, was one of several analysts who predicted Big Lots' faltering merchandising strategy could end the retailer up in Chapter 11.

"Ongoing under-performance and an assortment that does not resonate with cash-strapped consumers puts Big Lots at risk of bankruptcy," she told CoStar News in an email. "Americans continue to be pinched by inflationary pressures and have reduced discretionary spending amid an uncertain economic environment. However, other discounters like Aldi and T.J. Maxx continue to report strong results and tend to be benefactors during economic downturns as customers seek out value and trade down to save money. Big Lots is under-performing compared to direct competitors in the liquidation and buyout category like Ollie's Bargain Outlet, suggesting that Big Lots has not quite fine-tuned a compelling product offering to drive repeat visits to their stores."

To address its current financial woes, Big Lots said it will explore sale-leaseback opportunities for its properties. It's already done two such deals in the past four years, generating $1.03 billion. In June 2020, Big Lots did a sale-leaseback deal for four distribution centers for $725 million with Oak Street Real Estate Capital, now a Blue Owl subsidiary. And last August, Big Lots closed a $309.5 million sale-leaseback transaction for a distribution center and 26 store locations with Blue Owl.

Big Lots has acknowledged that a chunk of its store fleet is performing poorly, according to Bill Read, executive vice president at Retail Specialists.

“Big Lots is having issues and is fighting hard to right the ship," Read told CoStar News in an email. "Given the size of the problems, it's most likely that a Chapter 11 would help them reduce the size of their underperforming stores. Their recent quarterly filing shows 244 underperforming store locations or approximately 17% of their store fleet. Rejecting these leases would give the company a better chance of surviving."

During the first quarter, Big Lots recorded asset impairment charges of $68.2 million related to those underperforming locations.

Brandon Svec, national director of U.S. retail analytics for CoStar Group, said that while the pandemic threw Big Lots a lifeline, now it faces "just too much competition, a lack of real merchandising and customer attainment and retention strategies, and sub-par locations."

Several years ago, Big Lots pulled back its expansion plans and closed some stores in highly populated areas, such as North Jersey, where there's lots of retail competition from players like Target and HomeGoods. It began to focus more on smaller secondary corridors and tertiary markets, Svec told CoStar News.

With retail space so scarce, there will likely be new tenants for stores that Big Lots closes, even though those locations tend not to be as attractive as the Bed Bath & Beyond stores that went vacant when that chain liquidated last year, according to both Read and Svec. Big Lots stores average 33,500 square feet, but can be as big as 85,000 square feet.

“Big Lots locations will attract retailer attention, but the quality of real estate is nowhere near the quality of former Bed, Bath & Beyond spaces," Read said. "There's plenty of demand for these boxes, mainly due to the lack of availability in most markets for quality space. Furniture, fitness, grocery and home decor stores are the most likely users based on our tracking of former big boxes.”

That's happened in the past. In Livingston, New Jersey, for example, Crunch Fitness about a year ago took over a 25,300-square-foot former Big Lots space on the busy Route 10 corridor.

Big Lots' best store locations "will get snapped up relatively quickly because there is demand at that box size and not a lot of availability," according to Svec. In particular, stores that are less than 10,000 square feet would have wide appeal, to tenants such as Dollar General, he said. But there was a greater share of desirable store locations in Bed Bath & Beyond's portfolio, which went dark last year, than there are in Big Lots' fleet.

"The difference will be there is a much larger preponderance of lower quality retail that will struggle to capture the eye of a national credit tenant," he said. "And so because of that, you're more likely to see some of this stuff backfill much more slowly."

Poorer-located Big Lots' stores would likely attract local and regional tenants, according to Svec.

Lai sees Big Lots as having a number of options regarding its brick-and-mortar fleet, and said its sites would be alluring to a variety of retailers.

"The company could continue to unload stores either by closing and selling off locations or by leasing back more stores to improve their cash position," Lai said. "The stores are typically around 40,000 square feet in size and located in big-box power centers. Category killer, specialty retailers — e.g., sports, pet, home decor — could be good fits to acquire some of the real estate."

Saunders agreed that Big Lots locations would draw tenant interest.

"There are likely to be some takers for any stores that close as many are in reasonable locations," he said.

In fiscal 2023, Big Lots reported a net loss of $481.9 million, followed by a net loss of $205 million in the first quarter ended May 4. In that quarter, net sales dropped 10%, to $1.01 billion.

"Our net losses and use of cash in operating activities in 2022, 2023 and the first quarter of 2024, as well as our current cash and liquidity projections, raise substantial doubt about our ability to continue as a going concern," Big Lots said in its regulatory filing.

Comparable sales in the first quarter decreased 10%. For several years before the pandemic, Big Lots was eking out tiny increases in comparable sales. During the height of the pandemic, in 2020, its comparable sales were up 16.1%. They've been declining ever since, down 13.5% in 2023 and about 13% in 2022.

"Big Lots is a company in a financial pickle," Saunders said. "It is heavily loss-making, and its sales are sliding at a dramatic rate. The company has liquidity for the short term and can monetize some assets if needed, so it can survive in the short term. However, over the medium term there is a real risk of it falling into bankruptcy if it cannot stabilize the business."

Even if Big Lots filed for Chapter 11, Svec questioned who would step in to help the retailer.

"Who really wants to come in this environment, this cost environment, and bring rescue capital to the table for a business without a true place?" Svec asked.