Big Lots: Discounted Into Bankruptcy

Welcome to the 177th Pari Passu newsletter!

In today’s case, we break down the rise and fall of Big Lots, once one of the largest discount retailers in the United States.  What began as a strong retailer that endured decades and thrived during recessions and crises ended as a cautionary tale of strategic misalignment, aggressive capital allocation, and a failure to adapt in an increasingly competitive post-COVID retail landscape. The story builds on the decades that preceded bankruptcy, from the foundation to the filing itself.

The bankruptcy also added another layer of intrigue. What appeared to be a straightforward going-concern sale turned into a significant last-minute reversal, reshaping recoveries and leaving certain creditors unexpectedly impaired. This case study explores core retail fundamentals and illustrates how quickly outcomes can shift in Chapter 11 when a business is rapidly deteriorating. With that said, let's dive in!

With the motto “Live BIG and Save LOTS,” Big Lots is one of the largest home discount retailers in America. The store was known as a one-stop shop offering a “treasure hunt” experience with deeply discounted items, including furniture, décor, pantry essentials, kitchenware, groceries, and pet supplies. 

The business was founded in 1976 by Sol Shenk, a Russian-born merchandiser who operated multiple closeout retailers in Ohio. Originally, the company was named Consolidated Stores Corporation and began as a collection of discount stores called Odd Lots, which sold home goods and other items [1]. In 1985, Consolidated went public and raised $33.4mm (indicating around a $100mm to $200mm valuation), marking the start of the fast growth that would follow over the next few decades. By the end of the 1980s, the company had around 300 operating stores and was expanding into the soft goods market, which encompasses apparel and textile home goods like rugs and towels. 

In the 1990s, Consolidated made several acquisitions, focusing on the toy market: Toy Liquidators (1994) for an undisclosed price, KB Toys (1996) for $315mm, and Pic ‘N’ Save (1998) for $995mm in an all-stock deal. At the time, Pic ‘N’ Save was one of the largest closeout retailers in the US, and the acquisition enabled Consolidated to significantly expand its footprint. Additionally, the acquisition of KB Toys made Consolidated an operator of 1,300 toy stores,  second in size only to Toys ‘R’ Us [5]. In 1999, Consolidated was valued at $2.5bn, operated approximately 1,200 closeout stores and 1,300 toy stores, and generated $3.2bn in revenue [3]. 

However, in 2000, Consolidated decided to separate its toys business due to high volatility, intense competition, and financial underperformance despite significant investment into an e-commerce platform, which did not pan out. As a result, KB Toys was sold to Bain Capital for $305mm (below the original purchase price of $315mm), and Consolidated then started focusing solely on the closeout retail business [25]. 

In 2001, the company took a major step by renaming itself Big Lots, and all its stores were set to rebrand under one umbrella by the end of 2002. This was a strategic move that led to stronger brand awareness, after which Big Lots became the nation’s largest closeout retailer as we know it today. The company was focused solely on providing “extreme” value to its customers by offering deeply discounted goods, and as a result, Big Lots posted consecutive earnings records from 2007 to 2011 [1]. Such solid performance during the 2008 crisis illustrates that the stock was recession-resistant and benefited from consumer trade-down. 

Between 2013 and 2018, Big Lots sought to shift from a pure discount retailer to a more consistent, brand-oriented retail model, aiming to drive sales and expand its customer base. The goal was to reposition the company closer to the model used by Kohl’s, Walmart, and Target. However, this new strategy led to higher average prices for their merchandise, which caused an identity crisis. As a result, the company experienced weaker demand and a loss of market share due to heavy competition and alienation of the existing customer base that knew the store for everyday low prices. Such market feedback highlighted the importance of a clear value proposition for customers, and in 2019, a new management team was appointed to revive the company’s core mission as a discount retailer.  

This is a good segue to discuss the business more in depth and what it was like pre-distress. Between 2019 and 2024, Big Lots operated around 1,400 stores across 48 states. These stores averaged around 33,000 square feet (about one-third the size of a regular Walmart or Target), with aisles stocked with a variety of products. Big Lots sought to position itself as a one-stop shop for home essentials and discretionary items, and its revenue streams were separated to reflect the categories of goods it sold. These revenue streams include: (i) Food, (ii) Consumables, (iii) Soft Home, (iv) Hard Home, (v) Furniture, and (vi) Seasonal (i.e., holiday decorations). This segment structure came into existence after a reclassification in 2023; previously, the company also had an Apparel, Electronics, & Other segment, which was absorbed by other segments after reclassification. In the years before COVID, these segments generated a steady revenue of around $5.2bn, with adjusted EBITDA of $382mm in 2019 (~7.2% margin) [1][3].

As a discount retailer, Big Lots must source its merchandise from various vendors, primarily at reduced prices. The company leverages its extensive network of manufacturers and vendors to source closeout inventory from production overruns, packaging changes, discontinued products, and liquidations. At the operational level, most inventory was stored and delivered to Big Lots stores from five regional distribution facilities in Alabama, California, Ohio, Oklahoma, and Pennsylvania. This model allowed Big Lots to offer items from well-known brands at significant discounts compared to other retailers. Because much of the merchandise is sourced from closeout sales, inventory is always changing, creating a “treasure hunt” experience as items often don’t reappear. The resulting merchandise mix consisted of 75% bargains (items at good value compared to other retailers) and 25% essentials, which complemented the offering with staple everyday products and provided inventory consistency. The company used another classification – extreme bargains, defined as items with prices that provide “unmistakable value,” which accounted for 50% of the total mix and fell within the broad bargain category[1][2]. 

To drive brand awareness and sales, Big Lots ran advertising across social media, the Big Lots website, email, television, and print. Additionally, the company operated a customer loyalty initiative, Big Rewards Program, which had approximately 20 million enrolled members as of 2019. This program was critical to customer retention, accounting for 75% of total sales [1]. 

As noted earlier, Big Lots generated relatively stable revenue of approximately $5.2bn between 2015 and 2019, with gross profit averaging around $2.1bn, implying a gross margin of roughly 40%. In 2019, Big Lots’ stock traded at around $25 - $30 per share, and the market cap equaled $1bn at the end of the 2019 fiscal year, which ended on the last day of January 2020. As a note, this is consistent with all other fiscal years that end on the last day of January of the next year. 

Like with many other retail bankruptcies, the story of distress began with COVID, but not directly. As COVID-19 shutdowns started nationwide in March 2020, Big Lots was classified as a critical retailer, allowing all 1,400 stores to remain open. It was a huge win at a time when many other retailers experienced shutdowns lasting at least a few months. In 2020, the products sold at Big Lots were in high demand as people stockpiled food and essential goods because of the lockdown. Additionally, as jobs moved to remote settings, people began buying more home furniture, including comfortable chairs, sofas, and, most importantly, the essentials for a home office setup. 

In 2020, total revenue surged to a record $6.2bn, up 17% from $5.3bn in 2019. Adjusted EBITDA also reached a record of $504mm (8.1% margin) compared to $382mm (7.2% margin) in 2019. As expected, this growth was primarily driven by furniture, soft home, and consumables categories. 

In that same year, Big Lots completed a sale-leaseback transaction with Oak Street Real Estate Capital, covering four distribution facilities in Ohio, Oklahoma, Pennsylvania, and Alabama. In 2020, real estate markets were doing really well due to low interest rates, prompting Big Lots to capture strong valuations for its facilities. The leaseback provided Big Lots with a net $588mm in cash, intended for liquidity and other corporate purposes, including potential share repurchases once market conditions normalize [6]. Big Lots also used its excess cash to repay $247mm of debt under the old facility, bringing total debt down to $35mm at the end of 2020. All in, the company added $507mm in cash during FY 2020, bringing the cash balance to $559mm at the start of FY 2021. 

The increased demand continued into 2021, with total revenue remaining in line at $6.1bn. Adjusted EBITDA decreased from $504mm to $480mm, primarily due to increasing transportation costs as oil prices surged in 2021. However, profitability was still strong, reinforcing management’s view that performance had normalized, so the company proceeded with a $446mm share repurchase, the second-largest in history after $714mm in 2007. That year resulted in a cash outflow of $507mm, bringing the cash balance to $53mm and total liquidity to $648mm, including the credit facility at the start of 2022. After two years of strong performance, Big Lots used all the cash it generated for equity distributions, leaving cash neutral, as shown in the table below. Although favorable for investors in the short term, allocating all excess cash toward share repurchases rather than investing in technology would soon weigh heavily on the company’s long-term competitiveness and financial flexibility. This draws a strong parallel with Bed Bath & Beyond, as the company was deceived by the same wave of optimism that led management to authorize a huge $1bn share repurchase, draining cash before operating performance began to deteriorate. 

Everything started to turn in 2022 as COVID-driven demand began to cool down, coupled with adverse macroeconomic developments and industry trends. Over the years, furniture, seasonal, and hard home categories grew to become a substantial portion of the merchandise mix, representing almost half of the total offerings after the pandemic. However, people stopped buying furniture in 2022 because most necessary purchases had been made in the previous years, and other home decor and goods became less necessary. As natural demand for these items declined, inflation in the United States surged to 8% in 2022, further reducing demand. Rising inflation had a significant impact on demand for discretionary goods, eroding consumers' purchasing power and prompting them to make more conservative purchases and stick with staple products. Together, these pressures contributed to an 11% decline in Big Lots’ revenue to $5.5bn in 2022, down from $6.1bn in 2021, though still modestly above its 2019 revenue of $5.2bn.

The Bigger Problem

However, it would be a mistake not to note that Big Lots’ competitors, such as TJ Maxx, Target, and Walmart, continued to grow their revenues in 2022 and after, suggesting that some of the issues at Big Lots were due to a weak competitive position and a mix of strategic and operational mistakes. The first issue that we alluded to was that furniture accounted for a very large share of the store's product mix. It worked out well when many people needed it as part of their transition to working from home; however, as demand quickly slowed in 2022 and 2023, the segment became oversupplied and less profitable. Reports in 2023 showed that many furniture sellers were experiencing 10-20% declines in revenue [18].

The second overarching issue was that Big Lots did not provide much value to its customers, as many items sold there could be found at similar prices at competitor stores [16]. This factor was operational, as it likely implied that Big Lots was unable to source enough closeout purchases at good prices from its vendors. Meanwhile, mega-retailers like Walmart continued to leverage their economies of scale to secure highly favorable inventory pricing while simultaneously investing in e-commerce. Adding to the issues, Big Lots stores were often outdated, with old aisle shelves, fluorescent lighting, and out-of-season items, creating a combination that led customers to look elsewhere for everyday purchases [17]. 

Finally, the third key factor was that COVID created a natural shift toward e-commerce, as people were forced to shop online for many non-essential goods. When COVID lockdowns were lifted, foot traffic in physical stores never really recovered to pre-pandemic levels, as people got used to the new online shopping era. Big Lots relied on outdated processes and invested little in new technology, resulting in a weak e-commerce platform and lost revenue opportunities as consumer purchasing increasingly shifted to digital channels.

As a result, from 2021 to 2022, furniture segment sales decreased from $1.7bn to $1.3bn (24% decline), soft home sales declined by $823mm to $678mm (18% decline), and apparel & electronics sales went down from $675mm to $590mm (13% decline) [2]. As mentioned, overall 2022 sales decreased by $684mm, to $5.5bn. Below are the company's financials. 

As sales declined, Big Lots faced another detrimental issue: elevated inventory levels. Efficient inventory management is a key task for any retailer, requiring accurate forecasting of demand shifts and stock levels to avoid situations where demand is high and inventory is low, or vice versa. However, it is especially challenging during periods of market volatility, as COVID-19 has presented. Big Lots became overly confident after record sales in 2020 and 2021, believing demand would remain high. With that assumption, the retailer built up its inventory, increasing it by ~$300mm to $1.2bn at the start of 2022. 

As demand in key sectors like furniture and soft home unwound in 2022, the company found itself with excess inventory. This is where the key adversity kicks in: the only viable solution to sell excess inventory is to apply unprecedented markdowns, which would hurt the company’s margin. The company had to push through a lot of inventory, and its gross profit margin decreased from 39% in 2021 to 35% in 2022. This decline almost fully flowed down to EBITDA margins because SG&A stayed in line. Adjusted EBITDA declined from $480mm in 2021 to ($93mm) in 2022, and free cash flow was ($306mm), representing the first year of negative EBITDA and a significant cash burn.

To counteract the cash burn, Big Lots obtained new debt financing in September 2022 by issuing a $900mm ABL Revolving Credit Facility due September 2027. The lenders were a consortium of banks, including Wells Fargo, Bank of America, Fifth Third, and MUFG. This ABL Revolver replaced its old $600mm credit facility and carried an interest rate of SOFR + 3.50%. The company drew on the facility immediately, and by the end of 2022, it had borrowed $301mm under it. Availability under an ABL revolving credit facility is determined by the borrowing base (not the $900mm commitment cap), which is recalculated monthly. The borrowing base equaled $710mm at the end of 2022, and including $32mm of letters of credit, Big Lots had $377mm of availability under the revolver. After taking into account  $45mm of cash at the end of 2022, the company had $422mm in liquidity [2].

As demand fell across segments, Big Lots faced an idiosyncratic hurdle from one of the largest furniture suppliers for Broyhill (Big Lots’ proprietary furniture brand). In November 2022, United Furniture Industries (UFI) unexpectedly ceased operations without prior notice, interrupting its furniture supply. UFI accounted for approximately 7% of total revenue in 2022, underscoring the significance of the disruption and forcing the company to seek alternative vendors. The shortage of furniture contributed to the 8% decline in furniture sales from $1,279mm in 2022 to $1,180mm in 2023 [1]. 

In addition, Big Lots and other retailers faced a complex supply chain environment from 2021 to 2023. First, rising fuel costs increased freight costs, further compressing margins. While most of the merchandise sold by Big Lots came from within the US, 21% of the goods came from overseas vendors, and these imported goods were subject to global supply chain delays, which also hurt the company’s margins at a time when the top line was under pressure [2]. 

Going into 2023, Big Lots continued to face the issues we just discussed. Comparable store sales continued to decline, totaling a 13.6% decline to $4.7bn in 2023. The company continued to run aggressive markdowns to clear excess inventory, keeping gross margin at 35.7% in 2023, in line with 2022. Since SG&A stayed roughly in line, adjusted EBITDA fell to ($285mm), resulting in a substantial $323mm free cash flow burn. As an immediate countermeasure to the dramatic decline in profitability, Big Lots identified several strategic and financial opportunities to offset the losses.

Project Springboard

In the spring of 2023, Big Lots launched a cost-cutting and productivity initiative called Project Springboard. The primary goal of this project was to increase operating income by $200mm. The improvements were expected to be driven by 40% from reduced cost of goods sold through optimized purchasing practices, 40% from other gross margin improvements such as inventory optimization, and 20% from SG&A optimization. 

Beyond the project, Big Lots also focused on other ways to cut costs, primarily through closing underperforming stores. The company conducted extensive analysis to identify the least promising stores and reduced its net store count by 33, including 48 store closures, which decreased its store count from 1,425 to 1,392. There was also a major focus on reducing overhead costs and capital expenditures to preserve liquidity. For example, Capex was cut by 60% from $159mm in 2022 to $63mm in 2023. 

Sale Leaseback

Even after the company identified cost-cutting measures, cash burn remained the biggest issue, forcing the company to draw on its ABL. The company needed to raise additional liquidity and, as a result, completed a sale-leaseback transaction with Blue Owl Capital in July 2023 involving its California distribution facility and 23 owned stores. This transaction helped the company raise $210mm in net proceeds to repay borrowings under the ABL. As a result of the transaction,  annual lease expense increased by approximately $30-40mm.

This transaction was critical to ensuring that Big Lots doesn’t face liquidity strain. As mentioned, the company burned $323mm in free cash flow in 2023, and the $210mm proceeds from the leaseback transaction and a net $105mm increase in borrowing under the ABL were the only two things that offset the cash burn. 

Term Loan Raise

Big Lots started 2024 with total liquidity of $254mm ($207mm in availability under the ABL + $46mm in cash). The minimum liquidity under the ABL agreement was $90mm, below which the company would start a dominion period. To note, a dominion period is a provision in many ABL loans that allows lenders to take control of cash receipts and use them to repay the loan while allowing the borrower to continue operating (so it’s technically not a default). The company was only $174mm of cash burn away from triggering the event, and management knew that additional liquidity was needed. As a result, in April 2024, Big Lots obtained a first in,  last out (FILO) delayed draw term loan from Gordon Brothers with a capacity of up to $200mm. The term loan had a first lien on the company’s non-working capital assets and carried an interest rate of SOFR + 9.25%. Such a small, expensive term loan already seemed like a bridge financing towards a broader restructuring. Gordon Brothers, the lender, is a retail-focused investment firm specializing in restructurings and turnarounds, which will be relevant later in this case. 

Big Lots burned $161mm of free cash flow in Q1 2024, meaning that without the new facility, they would’ve been on the brink of entering the dominion period. 

At the end of Q1 2024, the company had $288mm of liquidity after accounting for the new $80mm minimum ABL availability covenant in the term loan agreement.

Advisor Appointment

Even after securing additional financing, it was clear that a broader restructuring was needed after almost entirely burning through the new secured financing in one quarter. In May 2024, Big Lots hired a whole set of advisors, including Guggenheim Securities, Davis Polk, and AlixPartners. The advisors considered several ways Big Lots could improve its position without filing for bankruptcy, including raising additional financing, pursuing M&A, selling a portion of its assets, and closing additional underperforming stores. The most prudent course, as advised by the advisors, was to combine store closures with the sale of the remaining stores [1]. However, the company was clearly about to file, making any out-of-court asset sale extremely risky for the buyer, as a filing would create a high risk of fraudulent transfer claims. Additionally, footprint rationalization is not straightforward because the company may not be able to terminate its leases, which can result in cancellation fees or outstanding payments. As a result, Chapter 11 seemed the best solution to allow the company to rationalize its footprint through Section 365 Lease Rejection and to conduct an in-court Section 363 asset sale free and clear of liens. 

As advisors planned the course of action during the summer of 2024, the company continued to underperform and burn cash, offset by a selloff of inventory. The company decreased its inventory by $112mm, which is important to note because it decreased the company’s borrowing base. Additionally, Big Lots entered into an amendment to its ABL and Term Loan facilities, reducing the ABL commitment to $800mm from $900mm, increasing allowed store closures from 150 to 315, and increasing the interest rate by 0.5%.  The combination of a decreased asset base and the aggregate commitment reduced Big Lots’ ABL borrowing availability to $552.2mm as of August 31, 2024. At that time, the company borrowed $473mm under the facility (including letters of credit), leaving $79mm of availability and triggering the $80mm minimum ABL availability covenant. 

Big Lots lasted as long as it could, and on September 9, 2024, it filed for Chapter 11.

Big Lots' capital structure on the day of filing looked as follows. The company had $556mm of debt outstanding and an LTM adjusted EBITDA of ($208mm).

Big Lots filed a motion to allow it to close certain stores, reject or assign leases, and sell stores and their inventory to monetize assets and right-size its footprint [19]. By December 2024, Big Lots would close about 500 stores, representing about 36% of its pre-filing store count. 

Additionally, the first day declaration included several other details about the upcoming restructuring.

At filing, Big Lots secured a $707.5mm debtor-in-possession (DIP) financing package, comprising a DIP ABL facility with a $550mm commitment cap and a new $157.5mm DIP term loan, consisting of a rolled $122.5mm pre-petition term loan and $35mm of new money commitments.  The $707.5mm figure did not represent the actual funded borrowing, as it was calculated using the DIP ABL commitment cap. The DIP ABL Facility consisted entirely of a roll-up of the prepetition ABL facility. It carried a coupon rate of SOFR + 3.50%, and the new DIP term loan carried a rate of SOFR + 9.75%. As a note, before the $434mm pre-petition ABL fully rolled up into the DIP (it was a gradual roll-up), some of it was paid off, likely using proceeds from store closures. As a result, despite the company having $556mm in pre-petition debt, its DIP balance peaked at $387mm. 

Prior to filing, the company’s advisors conducted an extensive marketing process for its assets. On September 8, the day before the Chapter 11 filing, Big Lots entered into a stalking horse asset purchase agreement with Nexus Capital Management to acquire substantially all of the company’s assets as a going concern. The proceeds from the sale were intended to fully repay the DIP ABL and the DIP Term Loans and assume most of the administrative claims, including post-petition trade credit arising from business operations [7]. This structure was intended to preserve Big Lots by transferring its operating business, which would include all open stores, facilities, inventory, and intellectual property to Nexus. An important provision in the purchase agreement was a minimum asset value, which will become relevant in a moment. 

In exchange for serving as the stalking horse bidder, Nexus was guaranteed a $7.5mm breakup fee and reimbursement of up to $1.5mm in out-of-pocket expenses. The agreement had no commitment or actual price floor, as the purchase price was structured to fully pay off the DIP facilities, with price adjustment mechanisms to allow for the assumption of administrative claims [9]. 

The bidding process ran through the end of October, and the official sale order hearing was scheduled for November 22nd. The sale was eventually approved, with the judge citing that the bid represented the best outcome for Big Lots [20]. 

However, on December 5th, Big Lots received a letter from Nexus stating that the minimum asset value under the asset purchase agreement had not been met. The estate had deteriorated in value, creating a $75mm equity gap that deviated from the original agreement (meaning that Nexus would still have to repay the DIP and assume certain liabilities while the value of the assets it would acquire was lower than expected)[10]. This prompted Nexus to withdraw from the deal two weeks later without consequences, since the minimum asset condition was not satisfied.  As Big Lots continued to operate its stores during Chapter 11, it incurred roughly $250mm in postpetition trade debt from ongoing inventory purchases [21]. 

When the deal fell through, Big Lots was left scrambling as the estate faced an impending deterioration, prompting lawyers to call it a “melting ice cube.” At that point, an all-store liquidation was being considered to maximize recoveries if no alternative buyer could be found. 

The advisors acted quickly to identify alternative paths to achieve a similar outcome. Fortunately for the company, Gordon Brothers Real Properties (GBRP) submitted a statement of interest on December 15th, setting the terms for a new sale of Big Lots’ assets. Remember that Gordon Brothers provided the DIP term loan, indicating that this new proposal was likely an opportunity grab, given Gordon Brothers’ close familiarity with Big Lots. 

The new proposed deal had a few key differences compared to the failed Nexus transaction.  The purchase price of the new transaction was around $495mm, and the proceeds were split by purposes as follows: (i) $304mm used to repay the remaining DIP facilities in full (the DIP ABL was paid down even more before the sale which decreased the balance), (ii) $17mm cash payment to pay certain stub rent expense, (iii) $42mm to fund the transaction administration budget, (iv) $125mm to fund the wind down budget (i.e. severance payments, professional fees, taxes payable, etc.), and (v) $7.5mm to fund the professional fee escrow account to ensure that professionals get paid in full after the deal closes [11]. Notice how this transaction did not consider administrative claims, which included stub rent expense and post-petition trade credit. 

This transaction was structured as a 363 asset sale, meaning that Gordon Brothers acquired all assets free and clear of liens, this time with all administrative claims remaining with the estate. It is also important to note that this deal was structured more as a liquidation sale, preserving only a limited number of stores, which is why deciding not to pay vendor claims was not as detrimental.  Approximately all 870 remaining stores were sold to Gordon Brothers, but only 200-400 stores were expected to continue operating under Variety Wholesalers after a secondary acquisition, while the rest were set to be liquidated [12]. To note, Variety Wholesalers is a private discount retailer chain that acquired certain stores from Gordon Brothers immediately after.

As discussed earlier, the DIP consisted of prepetition secured debt that was rolled into the facility, so a full repayment of DIP claims ultimately represented a highly favorable outcome for the lenders. However, as we mentioned earlier, administrative claims worth $250mm fared much worse. Under the Gordon Brothers sale, these claims would not be assumed nor addressed in the purchase price, meaning that prospects for meaningful recoveries were gone. 

Often, it is assumed that any liabilities incurred after filing are protected, as administrative claims must be paid in full under USC 1129(a)(9) for a Chapter 11 plan to be confirmed. Additionally, many vendors may be designated as critical, requiring pre-petition debt to be repaid. In any case, the logic is that if you want to emerge as a going concern, you will probably want to pay your vendors to maintain the relationships with them. These, along with numerous other protections, help ensure that vendors remain comfortable continuing to do business with the debtor during Chapter 11 and providing merchandise and services on credit.

However, the sale to Gordon Brothers was no longer a going-concern sale and only preserved a limited number of stores. The transaction overlooked administrative claims, focusing primarily on ensuring that the DIP was paid in full (since they had liens attached to the assets), that professional fees were paid, and that all winddown costs were funded. The DIP order classified the DIP loans as 364(c)(1) super-priority administrative claims, to be paid in full before other regular 503(b) administrative claims. What administrative claimants overlooked is that they do not need to be paid in full in a case that doesn’t fully preserve the business or converts from Chapter 11 to Chapter 7, which was about to happen. This meant that vendors continued to do business with Big Lots, as the original deal with Nexus would ensure they got paid out, but when the deal fell through, all those promises were erased.  

To make things slightly better for administrative claims, one asset was carved out of the sale to Gordon Brothers and remained within reach: the corporate headquarters in Ohio. In April 2025, the company sold the HQ in a separate transaction for $36mm of proceeds, which would be used to repay the administrative claims that stayed with the estate. In the end, the company paid approximately $75mm by October 31, 2025, against roughly $274mm in reconciled claims [23]. The outcome reflects only a 27% recovery for administrative claims, suggesting that the perceived protections ultimately proved illusory. On the other hand, professional fees were paid in full, as they received greater protections, including the $7.5mm escrow account as part of the Gordon Brothers sale. 

To bring the chapter to an official resolution, Big Lots was officially converted to a Chapter 7 on November 4, 2025. The conversion was completed 10 months after the sale to Gordon Brothers, during which time was spent reconciling claims and addressing ongoing motions, such as the UCC's Directors & Officers litigation. Once the issues were solved, Big Lots was essentially a shell holding virtually no assets. 

 Most importantly, the conversion allowed Big Lots to avoid repaying the remaining administrative claims, unlike a Chapter 11 confirmation would require. The conversion also allowed the company to fully liquidate and make payments on remaining claims and professional fees from the $7.5mm professional fee escrow account, marking an official conclusion to the case.

So far, 219 stores have reopened under Variety Wholesalers' new ownership. The new stores will operate in 15 states, most of which are in the Midwest and the Southeast. It is a drastic downsizing in footprint, with around 1,200 stores closed since the bankruptcy filing. 

The new Big Lots will focus on being solely a discount retailer. CEO of Variety Wholesalers, Lisa Seigies, said, “You can’t do high-low in off-price, you have to be everyday low prices,” referring to the period prior to COVID when Big Lots tried to become a more traditional retailer with consistent, branded inventory, which many believe was a huge mistake [24]. Additionally, the new stores shifted their focus away from furniture, making the broader home furnishings segment account for a third of the offering mix, down from half previously.

Overall, the Big Lots case offers several key lessons on business strategy and bankruptcy outcomes. It is one of the many post-COVID bankruptcies caused by shifts in consumer preferences, spending, and competition from mega-retailers like Walmart and Target. Retail fundamental rules remain in place, as achieving the right merchandise mix and inventory levels is what keeps successful retailers afloat and drowns those who fail to follow them. Additionally, the company’s capital allocation approach underscores the risks of prioritizing short-term shareholder returns over long-term strategic investments. The company performed a sale-leaseback in 2020 and received $588mm in proceeds, only to use most of them toward a share repurchase program instead of investing in technology that would help it stay afloat in the new retail competitive environment.  Creditors also learned a lesson: administrative claims can indeed get heavily impaired in a Chapter 11 case, despite many people’s mistaken perception of safety. 

It remains to be seen whether Variety Wholesalers can restore Big Lots to its former prominence or reposition it as a strong, competitive retailer with a significantly downsized footprint. Either way, regaining meaningful market share will take time.

This writeup draws on publicly available sources and our independent analysis to present estimates as part of a complete picture. These figures should not be interpreted as company disclosures.

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This analysis is provided for informational and educational purposes only and does not constitute investment advice, legal advice, tax advice, or a recommendation to buy, sell, or hold any security. The content reflects the author's opinions and estimates based on available information and should not be relied upon as the sole basis for any investment or legal decision. Readers should conduct their own due diligence and consult with qualified financial, legal, and tax advisors before making any investment decisions. Past performance and historical analysis do not guarantee future results.