Rite Aid closing at least 63 stores

[storewanderer]

Rite Aid says it is going to emerge from bankruptcy in late June.

Wonder how they plan to address the inventory issues?

[Retailuser]

Wow 1,633 now seems like they are back busy closing locations again.

[storewanderer]

This weekend went into more locations. I do not know what is going on but this just keeps getting WORSE and WORSE.

Multiple Sacramento area locations it feels like out of stock rate exceeds 50%. One store in Antelope I went into in April looked sort of kind of better, but now this weekend it was a disaster; I mean, there are entire categories that must have been 90% out of stock. This store actually seems to have a good amount of foot traffic, seems to be a good corner, and obviously does a lot better than a Walgreens at a not as good intersection nearby. Food/cleaning/toys/office were horrible. Liquor was pretty well stocked (and they self distribute liquor in CA so this is interesting to me). Also stuff like cough drops almost the entire aisle was just empty- all brands- how do you run out of those it is the end of May this isn't January or flu season or something. The unit on Marconi needs to just close, they are done there, completely done... but this Antelope unit is not looking much better at this point.

I know the CEO claims they will exit bankruptcy in late June. Really? How do you plan to operate stores with such excessive out of stocks? How will you buy inventory? The cash infusion needed to do an inventory buy at this point is massive with what they have allowed to happen. Product costs keep increasing, the longer they put this off and fail to buy inventory/restock their shelves, the costlier and more difficult it will be for them to do so.

[reymann]

I went to a store in San Jose over the weekend and they were very low on a lot of things there. I can't see them surviving too much longer in the bay area at this point.

[Romr123]

Not seeing here in Michigan the dire reports you're reporting from CA.

Interestingly, the clearance sections universally (i.e. at all stores) have cold/flu merchandise (generally more esoteric SKUs and CPAP/digital thermometer merchandise) recently added around here.

[babs]

https://morningnewsbeat.com/#facetime-w ... connection

• From Bloomberg:

"Rite Aid Corp.’s legal team sought to reassure creditors that the bankrupt pharmacy chain will survive Chapter 11, saying the company is still working with banks and a key bondholder group on a rescue deal that has taken longer than expected to finalize.

"A bondholder group slated to take the keys to the company is expected to inject new cash into the business while banks have agreed in principle to economic terms for exit financing, Rite Aid lawyer Aparna Yenamandra said Friday during a hearing in New Jersey. Advisers are working to marry the two funding sources, a process that’s 'taken longer than any of us would have liked,' she said.

"Other hurdles to the restructuring remain, including creditor concerns over Rite Aid Chief Executive Officer Jeffrey Stein’s compensation, Yenamandra said.

Stein, who was appointed chief executive officer the day Rite Aid filed bankruptcy, is due to be paid $20 million when the pharmacy restructures, which committees representing opioid victims and other creditors have criticized.

"Last month, Rite Aid delayed a court hearing where a New Jersey bankruptcy judge was scheduled to consider approving its reorganization plan. Some company creditors have also asked Rite Aid advisers to cut their professional fees amid mounting liquidity concerns, Bloomberg reported Tuesday."

Rite Aid may indeed need an infusion of funding, but it seems to me that it also would be helpful to have a vision of how it will engage with 21st century consumers and meaningfully differentiate itself from the competition. I don't think we've seen that yet, which suggests that new funding could just be new money after bad.

[storewanderer]

Not seeing here in Michigan the dire reports you're reporting from CA.

Interestingly, the clearance sections universally (i.e. at all stores) have cold/flu merchandise (generally more esoteric SKUs and CPAP/digital thermometer merchandise) recently added around here.

Lower volume stores don't look as dire. They may be close to 80% in stock rate. They achieved this by shipping stuff from closed stores late last year into these stores and the sales are so slow they still have a lot of that stuff. There are not many of these lower volume stores left in CA. A lot of what is left is actually medium volume type stores and they are really suffering on inventory.

The clearance sections vary by store, in CA some of those sections have nearly emptied out (again.. busier stores..) but some are still very full (slow stores). There is an assortment of items in those sections and has been from the time they set them up; cough/cold, pain, candy, drinks, cosmetics, hair appliances, vitamins, etc.

I looked at a few cough/cold items in the clearance sections this week/last week but passed as all had expirations by 11/2024 or sooner.

[ClownLoach]

https://morningnewsbeat.com/#facetime-w ... connection

• From Bloomberg:

"Rite Aid Corp.’s legal team sought to reassure creditors that the bankrupt pharmacy chain will survive Chapter 11, saying the company is still working with banks and a key bondholder group on a rescue deal that has taken longer than expected to finalize.

"A bondholder group slated to take the keys to the company is expected to inject new cash into the business while banks have agreed in principle to economic terms for exit financing, Rite Aid lawyer Aparna Yenamandra said Friday during a hearing in New Jersey. Advisers are working to marry the two funding sources, a process that’s 'taken longer than any of us would have liked,' she said.

"Other hurdles to the restructuring remain, including creditor concerns over Rite Aid Chief Executive Officer Jeffrey Stein’s compensation, Yenamandra said.

Stein, who was appointed chief executive officer the day Rite Aid filed bankruptcy, is due to be paid $20 million when the pharmacy restructures, which committees representing opioid victims and other creditors have criticized.

"Last month, Rite Aid delayed a court hearing where a New Jersey bankruptcy judge was scheduled to consider approving its reorganization plan. Some company creditors have also asked Rite Aid advisers to cut their professional fees amid mounting liquidity concerns, Bloomberg reported Tuesday."

Rite Aid may indeed need an infusion of funding, but it seems to me that it also would be helpful to have a vision of how it will engage with 21st century consumers and meaningfully differentiate itself from the competition. I don't think we've seen that yet, which suggests that new funding could just be new money after bad.

Some of this is absolutely ridiculous. I'm not a fan of excessive CEO compensation, but they knew what they were signing up for and this was not a surprise. This guy didn't screw up the company, he was hired to clean up the mess and put out the dumpster fire. I would imagine that there aren't a lot of qualified CEO candidates who want to sign up to run a bankrupt company. The other qualified options might have wanted even more compensation. If we were talking about the former CEO that would be different, I would say cancel their golden parachute and everything else.

The bankruptcy "advisors" are the LAWYERS. They like to try to weasel into using a different title. But the problem is that the process is too complicated for big corporations of this size, it's like trying to bring in the Titanic for a complete overhaul. They have likely had to write hundreds of thousands of pages of government required mumbo-jumbo and I'm sure the people who did all the paperwork are not fat cat execs but rather hourly employees who need to be paid for their work. Once again the risk of being a bankruptcy lawyer is that if you are not successful and things go south your bill winds up being added to the "unpaid debts" list and you get nothing. Obviously if the company is exiting than they did their job and should be paid for their work.

And the creditors are worried about the company surviving, while they keep dragging out the process of restructuring? Really? Do they understand cause and effect?

As far as a survival plan goes, I don't think they need to reinvent the drugstore. They were running a decent drugstore compared to the bleak and depressing CVS and Walgreens duopoly. They have a superior store format in Wellness and should only be investing in finishing the conversion of the fleet to that format which will in turn lower costs and simplify operations. It sounds like the majority of their issues stemmed from bad financial arrangements such as the bizarre loan covenants requiring $250M annually to be wasted on unnecessary remodel work like the sign changes, just erasing that one line means a $250M improvement in annual profit immediately. They do need to make sure they improve on basic execution of pricing and in stocks which sound like a challenge getting out of a bankruptcy. And they need to figure out how to offer a superior, trouble free pharmacy experience to attract and retain eligible CVS and Walgreens customers.

[storewanderer]

I blame whoever/whatever has made this decision to not restock inventory in the stores properly in the past couple months. I don't know what is causing this (I have my ideas but they're unsubstantiated), but it is unacceptable. Whatever creditor groups who are trying to "preserve" this company and take the asset over- should not be allowing this. The fact that they are allowing this makes me think they just want to go out of business. I know it makes no sense... There is no way a retailer can exit from bankruptcy and successfully survive when it doesn't have enough inventory to sell or an ability to generate adequate cash flow from sale of said inventory.

Unfortunately this feels like a continuation of the decision made under the previous CEO back in summer 2020 where they cut a ton of "non core" inventory out of the stores and never replaced it with new products. The difference now is they are not bothering to properly replenish "core" inventory. This just feels like a continuation of that 2020 non-core category cut, despite that there is this new CEO who obviously has no connection to the previous CEO. It is obviously a fiscally responsible move in retail to improve your cash flow by not having your money tied up in non-moving inventory and what they did in summer 2020 struck me as a way to monetize inventory that had been sitting around for far too long and wasn't moving... but what they are doing currently not replenishing core categories/key products... has severe consequences.

[ClownLoach]

I blame whoever/whatever has made this decision to not restock inventory in the stores properly in the past couple months. I don't know what is causing this (I have my ideas but they're unsubstantiated), but it is unacceptable. Whatever creditor groups who are trying to "preserve" this company and take the asset over- should not be allowing this. The fact that they are allowing this makes me think they just want to go out of business. I know it makes no sense... There is no way a retailer can exit from bankruptcy and successfully survive when it doesn't have enough inventory to sell or an ability to generate adequate cash flow from sale of said inventory.

Unfortunately this feels like a continuation of the decision made under the previous CEO back in summer 2020 where they cut a ton of "non core" inventory out of the stores and never replaced it with new products. The difference now is they are not bothering to properly replenish "core" inventory. This just feels like a continuation of that 2020 non-core category cut, despite that there is this new CEO who obviously has no connection to the previous CEO. It is obviously a fiscally responsible move in retail to improve your cash flow by not having your money tied up in non-moving inventory and what they did in summer 2020 struck me as a way to monetize inventory that had been sitting around for far too long and wasn't moving... but what they are doing currently not replenishing core categories/key products... has severe consequences.

I highly doubt they have any control over this. There are many major vendors who will not do any business with companies in receivership, even if offered cash up front.

This is all a recent development out of 2020.

Most retailers started playing games with their vendors under the threat of the pandemic. They decided they would arbitrarily change payment terms to 180 days or worse. The vendors might not have been set up with financing to withstand a shift like Net 60 moving to Net 180, and they suddenly had to borrow money to pay their bills since the retailers were effectively financing at 0% with the threat of "accept our new terms or we drop you." And then look at how many retailers wound up filing for bankruptcy anyway and these bills that ordinarily would have been paid were pushed out far enough to increase the vendor losses in court where they got pennies on the dollar. Part of the inflation issue across the country is that everyone is borrowing more and having to pay the costs through the increased interest rates. That means price increases across the board. Companies that produce goods who didn't have any serious debt had to take on financing to survive and are still paying those costs. And as we have seen in some cases (Paper Source) stores order extra goods and stock up before shocking everyone with a bankruptcy, leaving the vendors holding the bag.

In a nutshell, vendors are far less cooperative now than they were out of a sense of self preservation. So it is much more difficult for a retailer to successfully maintain "business as usual" status under Chapter 11 today.

Rite Aid made a lot of mistakes but I do not believe this is one where they have any control over the situation. I highly doubt their Executives are happy with negative comp sales since their bonus compensation plans surely will not pay out unless sales are positive.