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Report Claims ‘Racist’ “Pirate Equity” Firms Destroyed 1.3 Million Retail Jobs

Courtesy of ZeroHedge. View original post here.

Elizabeth Warren's twitter feeds have been clogged with clips of Rachel Maddow and links accusing President Trump of breaking the law (in honor of Robert Mueller's appearance before Congress on Wednesday), but as soon as she has a spare moment to read it, we imagine the following report will soon make an appearance in her campaign literature and stump speeches.

Entitled "Pirate Equity: How Wall Street firms are Pilaging American Retail," a group of researchers funded by a coalition of left-wing political groups and think tanks drew some startling conclusions about the number of retail jobs that have been destroyed by private equity firms and hedge funds.

In just the first three months of 2019, 33 retailers have announced 6,683 store closures. The vast majority of these retailers (70%) are owned by private equity firms. Another 4,680 stores at name brands like Payless Shoes, Sears, K-Mart, J. Crew, Shopko, and Charlotte Russe, to name a few, are expected to close in the coming months.

The wave of retailer bankruptcies that has swept across the US over the past few years has destroyed hundreds of thousands of jobs. Of course, the expansion of the US labor market has more than offset this. But the report's authors have determined that firms controlled by PE or hedge funds destroyed a net 597,000 jobs, even as the sector as a whole added more than a million jobs.

Additionally, the researchers determined that another 728,000 "indirect jobs" were lost at suppliers and local businesses who relied on these chains for business. And over the coming years, another 1 million low-paid retail jobs could be in jeopardy.

With all of this considered, the researchers determined that PE firms have "destroyed eight times as many jobs as they have created over the past ten years," the report said.

The analysts also cited a Jan. 2019 study by the Economic Policy Institute – a left-leaning think tank based in Washington that has longstanding ties to the American labor movement – which also determined that, for every 100 retail jobs that are lost, another 122 additional indirect jobs are also lost. As evidence, the report cited Mattel, the toymaker, which laid off 2,200 workers after Toys R Us closed its stores, causing Mattel's sales to drop by 14%. A similar pattern of layoffs took place at Hasbro.

We're not sure where the EPI got these numbers (the report doesn't specify), but these numbers seem high to us. It would be specious to blame Toys R Us's closure for every layoff at one of its former suppliers, as the researchers seem to imply. And even if Hasbro, Mattel and a handful of other toymakers laid off a few thousand employees each, that pales in comparison to the number of retail jobs lost when Toys R Us closed. Plus, toymakers are struggling to adapt to competition from tech gadgets and video games, trends that have nothing to do with Wall Street.

But the number of jobs lost might not matter as much as the, uh, demographics of those who lost their jobs.

That's right: Not only is the private equity industry guilty of boundless greed and cruel indifference to the suffering of the working class – they're also guilty – however inadvertently – of being racist.

According to the report, the layoffs were most concentrated in the clothing, general merchandise, and grocery subsectors – industries that employ disproportionately large numbers of women and people of color.

Given the workforce demographics of those subsectors and the dynamics of the broader economy, these job losses disproportionately impact a diverse workforce with large numbers of women and people of color.

Given the workforce demographics of those subsectors and the dynamics of the broader economy, these job losses disproportionately impact a diverse workforce with large numbers of women and people of color. For instance, more than three-quarters (76%) of workers in the retail clothing sector are women, and 43% are Black, Asian, or Latinx. In the general merchandise sector, nearly half of workers (46%) are Black, Asian, or Latinx, and 60% are women.

These job losses are especially devastating for people working in retail because they already face high rates of poverty and income volatility. Retail employers often provide poor quality jobs with low pay and no benefits, stagnant wages, high rates of underemployment (despite many workers wanting full-time hours), and unstable schedules that fluctuate week to week.

Losing a job is difficult for anybody. But at least white cisgender men have the benefit of being, well, white cisgender men while they're hunting for their next low-wage, no-benefit part-time retail job(s). Black and Latinx workers "have a harder time rebounding and face employment discrimination" after hedge funds and private equity firms have destroyed their jobs. The report also notes that black unemployment has historically been twice the level of white unemployment (though, as President Trump has repeatedly reminded us, black unemployment has fallen to historic lows during the Trump era).

But why, exactly, are retail companies so attractive to private equity firms? After all, retailers can be vulnerable to unpredictable shifts in tastes and rely on low profit margins. But retail chains often have one critical asset that's attractive to the LBO crowd: real estate. Like Sears, retailers often own the land on which their stores operate. This has two benefits: PE firms can borrow against the land to secure the debt loaded on the companies, or they can sell it (then, as Eddie Lampert did with Sears, lease it back) to fund a quick dividend or to make a payment.

We'd like to add another reason why PE firms are attracted to retail. Avenue Capital founder Marc Lasry said during an interview on CNBC this week that energy and retail are the two sectors most attractive to distressed funds. Many PE firms search for businesses that are in trouble so they can A) buy them at attractive valuations and B) turn them around for a profit.

There is one criticism that we couldn't easily rebut: PE firms do have a nasty habit of taking on debt to finance dividends to pay themselves at the expense of bondholders and, of course, employees at the underlying businesses. It's difficult to deny the bad optics of Payless Shoes entering liquidation while Randall Smith, the founder of Alden Global Capital (the hedge fund that controls Payless), goes on a mansion shopping spree.

While we concede that the juxtaposition of ridiculously expensive luxury homes with poor, freshly fired cashiers, stockboys and managers, one mustn't forget that Democrats have benefited from Wall Street's largesse just as much as Republicans have. Still, since ratcheting up her attacks on Wall Street, Warren has seen her poll numbers climb. But will this be enough for her to sow up the nomination?

That, of course, remains to be seen.


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