How The 'Toys R Us Effect' DESTROYED Big Lots

Big Lots is in trouble. The discount retailer is closing hundreds of stores and has filed for Chapter 11 bankruptcy.

This was unexpected. Big Lots, with its low prices, should have thrived during tough economic times. It was positioned as a haven for cost-conscious consumers facing a cost-of-living crisis and inflation. But its deep-seated problems have finally surfaced, exposing a flawed business model that led to years of financial losses. These issues are so severe that survival after bankruptcy seems unlikely.

Big Lots, founded in 1967, operates over 1,000 locations in the United States. It built a reputation for offering budget-friendly, treasure-hunt-style shopping experiences, selling closeout and overstocked merchandise from other retailers. Loyal fans embraced the chain, but its recent announcement of store closures and bankruptcy filing in 2024 shocked many.

The bankruptcy filings reveal that Big Lots has been struggling for years, with 16 straight quarters of declining sales and losses. This long downturn drained resources, leaving the company unable to adapt as the retail landscape evolved, especially after the pandemic.

Big Lots’ business model is at the root of its troubles. The company depends on closeout and overstocked items, leading to inconsistent inventory. While some enjoy the variety, most shoppers prefer reliability, which Big Lots fails to deliver.

Additionally, Big Lots’ focus on furniture, home decor, and clothing poses a challenge. These categories are often the first to be cut when consumers face financial pressure. With inflation soaring, many Americans are focusing on essentials like food and housing, leaving less room for non-essentials—the very items Big Lots specializes in.

Meanwhile, competitors like Walmart and Target are thriving. They provide consistent inventory and act as one-stop shops for a wide range of products at competitive prices. Walmart, in particular, has become a favorite for budget-conscious shoppers looking to save on essentials.

Big Lots’ eCommerce failures compounded its problems. For years, its website lagged behind competitors, feeling outdated and disconnected from physical stores. While other retailers invested in seamless online and in-store shopping experiences, Big Lots fell further behind. The pandemic-era online shopping boom highlighted this gap, pushing the company closer to collapse.

With growing debts and persistent losses, Big Lots filed for Chapter 11 bankruptcy. This allows the company to operate while reorganizing its finances and devising a plan to repay creditors. However, the future looks bleak.

To reduce debt, Big Lots is closing hundreds of stores and has been acquired by Nexus Capital Management, a private equity firm. This introduces further risk. Private equity firms often prioritize short-term profits over long-term stability. While they may pledge to support struggling companies, their focus is usually on extracting value through layoffs, closures, and asset sales.

The history of Toys “R” Us offers a cautionary tale. Acquired by private equity, it was saddled with massive debt, which limited growth and innovation. Despite promises of improvement, the firms prioritized short-term gains. Toys “R” Us filed for bankruptcy in 2017 and closed all US stores by 2018. Big Lots faces a similar risk under Nexus Capital’s ownership.

Big Lots’ challenges highlight the risks for retailers lacking a unique edge. Stores selling non-essentials with no distinctive offerings often fail in crowded markets. During economic downturns, when consumers cut spending, such businesses struggle to survive.

Big Lots needed a miracle to survive, but miracles rarely come.