How in the Hell Did Joann Fabrics Die While Best Buy Survived? It Wasn't Amazon
a day ago
- #retail-apocalypse
- #leveraged-buyouts
- #private-equity
- Best Buy survived by stabilizing operations, matching Amazon's prices, and leveraging vendor partnerships, while Joann Fabrics collapsed due to debt from a leveraged buyout that prevented necessary reinvestments.
- Joann Fabrics was profitable and debt-free before a private equity buyout loaded it with debt, leading to store closures and liquidation despite positive cash flow in 96% of stores.
- The 'retail apocalypse' narrative often blames Amazon, but many retail failures are due to leveraged buyouts that burden companies with unsustainable debt, not e-commerce competition.
- Best Buy's turnaround under CEO Hubert Joly involved cost cuts, price matching, and store-within-a-store concepts, while Joann cycled through nine CEOs and cut staff, degrading customer experience.
- Private equity ownership models, like the one that acquired Joann, often extract value through fees and debt, leaving companies unable to adapt or compete, leading to higher bankruptcy rates compared to publicly traded firms.
- Hobby Lobby's rise as a competitor to Joann was facilitated by its debt-free, family-owned structure, allowing it to invest in customer experience while Joann cut costs to service debt.
- The pandemic briefly boosted Joann's sales, but the private equity owner used the opportunity to take the company public again, prioritizing debt repayment over long-term growth, leading to eventual collapse.
- Research shows that leveraged buyouts in retail have a high bankruptcy rate, with private equity-owned companies accounting for over half of retail bankruptcies from 2015 to 2020.
- The divergence between Best Buy and Joann highlights how ownership structure—public vs. private equity—determines a company's ability to reinvest, adapt, and survive competitive pressures.