How Private Equity Buried Payless

Finance-driven capitalism was supposed to make the economy more dynamic. A failed shoe chain shows why it hasn’t happened.

Comments: 211

  1. Private equity firms believe smarts are more importent than experience Combine that with taking money out of companies every year in the form of special dividends, and most of these stories don’t end well

  2. @Paul, I have met and gotten to know a lot of people who are in private equity, and I can say for sure that your assertion that "private equity firms believe smarts are more important than experience" could not be further from the truth. Yes, these people are very smart, and that is why they value experience. There's always a few failures, but that will always be true, because business involves risk, and that includes the risk of complete failure and huge loss of money and jobs. But if people were not willing to risk their money, there would be no jobs at all.

  3. @Marty All too often, the financial interests at private equity firms are _not_ risking any money. Their investment is recouped quickly from the debt that they take on in the takeover transaction -- debt for which not the private equity firm, but the target is liable. It really couldn't be clearer.

  4. My background is in quality assurance. I do not believe I would be a good fit in retail. So, given that, why would any business entity install those who have no background in retail in executive positions in retail? Oh, I know, nickel-clickers and numbers crunchers with no regard as to the real costs of poor judgement in penny-pinching.

  5. Having been involved in a private equity transaction and having learned a lot about the industry, I would say the advantage private equity has over publicly traded companies is that private equity firms do not have the pressure to produce immediate quarterly returns. Most of the time, they are free to initiate a 5 to 7 year plan for a turnaround. Their investors know this. That's why private equity is so successful and people and institutions are eager to invest in those firms.

  6. "Turnaround" for the equity company = bankruptcy for the company, all workers losing jobs, secondary negative financial losses for the town/immediate area due to the job loss. And massive profits for vulture capitalism. No wonder Bernie is surging.

  7. This story reminds me of a Harvard Business School case I used to teach. Top management believes it knows everything because it looks at the numbers. How the numbers are created, read individual creativity and productivity, is ignored. Flexibility to meet demands is lost. Financial goals are short term but deadly. Just look at Sears. The demand for most of its products and services was there but it couldn't adapt quickly enough to exploit it. Selling off assets pays off debt and other short-term players.

  8. I would be interested in reading the HBS case. Do you recall the name of the case study?

  9. "What if the masters of financial efficiency are making choices that don’t actually create the more dynamic, productive economy they promise?" These are pure heads-I-win-tails-you-lose transactions structured so that the private equity money gets paid first and no matter what else happens.

  10. Private equity buys a company for one purpose and one purpose only. To strip it of its most valuable assets and load it up with debt in order to pay the equity partners huge "management" fees. If a company actually survives its a fluke.

  11. Consumer retail has experienced industry wide issues over the last 5 years. The really big mistake for these smart people is they did not see this tsunami forming. Besides a growing consumer preference to avoid malls, the USA has far too many stores period. Victoria’s Secret, Macy’s, and Nordstrom’s are just a few of prior success stories that stumbled badly. Yes, the private equity firm made errors in an unforgiving market. The group spent and lost their money plus likely a big portion of money lent to them.That is how business works. Given the company’s prior condition and the horrible overall climate for retail, it is an open question as to whether Payless would have survived without the private equity group’s investments.

  12. @Michael Blazin The group probably made a big profit. Others lost.

  13. Call it what it was. It was a looting. Once all the equity had been sucked out of the company the husk was discarded. It is an old story.

  14. How many successful firms have been bled dry and eventually killed by private equity firms? Their focus is on how much money they can milk out of an acquisition. They buy a firm, suck out 'excess capital' and load it up with debt, then sell it off in a weakened state where it will eventually fail. It's all about the $$$$$$. Jackals bleeding viable firms dry.

  15. Private equity believes in making money quickly. This does not necesseraly mean that the target companies ought to be well run, especially for the long run.

  16. The hedge fund got back their money in the special dividend, the Chinese manufacturer was stuck with unpaid bills. Is'nt backruptcy wonderful?

  17. @seattle expat The workers lost their jobs, the customers lost their shoe supply, etc., etc., and the private equity firms had big profits to use in the next cycle. I also suspect favorable tax treatment helps sponsor these leveraged buyouts, such as the deductibility of interest payments from taxable profit.

  18. An tremendous excess of capital in the super investor class, combined with a searing deficit of capital among the plebs, predicts this waste.

  19. Private quite firms are basically legal vultures. When a corporation or industry it in trouble, they come down, pick on the remains, throw away any piece they don't like to eat and let them survive and in the process they become billionaires.

  20. @Paul You are confusing them with vulture capitalists who specialise in buying distressed companies. PE looks for undervalued companies. They want a company with a lot of cash on the balance sheet. They want the cash, and they want something they can borrow against, using the loan proceeds to pay themselves special dividends and management fees.

  21. @Jonathan thank you for your reply. It may be a technical difference but to me there is little difference. They are millionaires who go in and thru favorable laws make millions or billons out of something that you or I pay for.

  22. Leveraged buy-out failures are often not a failure at all, but a well-executed plan by Wall Street vampires: 1. Buy an undervalued company on the cheap. 2. Use the assets of that company as collateral to secure a massive loan. 3. Funnel the loan into huge payouts to the buyout firm, while investing nothing in the company. 4. Make the bought-out company declare bankruptcy, close it down, and lay everyone off. 5. Feign shock that things didn't work out. Exhibit A: Toys R Us

  23. @Jim The most inhumane thing is when they raid overfunded pensions and then find out that the fund was not overfunded at all. They stop funding the account after they have taken their special dividend. Then they leave the Pension Guaranty Board and the rest of us with the liability.

  24. @Jim Precisely... it's laughable that anyone believes the economics of PE "don't work..." they work perfectly - for the PE firms. It's an industry that happens to cause chaos in other industries, but stand-alone it's a remarkably successful business model when executed correctly. Hate the game, etc...

  25. @Jim - Yes; Irwin incorrectly states: "When resources are devoted to boondoggles, and companies are run by incompetent cronies, everyone ends up poorer." since the financiers do not end up poorer.

  26. "For every dollar that came in the door of the company in that span, it paid out $1.41 to its owners and 38 cents to its lenders." I don't think you need an MBA from Wharton to identify that as a bad business model. Yet, if you look at too many of these deals, the "financial wizards" aren't interested in improving the company...they're interested in making money by stripping assets and cash, like the $6 billion in debt piled on the formerly successful Toys “R” Us, leaving it to pay $500 million annually in interest payments alone. Or the $1.5B in debt that sunk Gymboree. This belies Mr. Jones claim that “Yes, taking out the money, in hindsight, made the business more vulnerable, susceptible, and in an environment of so much uncertainty that nobody understood. In hindsight, we shouldn’t have done it.” To the contrary, taking money out is the ONLY reason for most of these deals. The investment firms get their millions and the employees get laid off.

  27. Ebay is a good case study in why productivity hasn't grown faster. They treat their sellers like slaves, always heaping new requirements on us that mess with our productivity as if that is the point of the business, to turn us into cogs in the ebay machine. They had a much better listing tool for sellers 10 years ago than they do now, they destroyed it for reasons of their own convenience without a thought about the effect on sellers.

  28. @newageblues Agreed! Ebay is a mess which succeeds despite itself simply because it's such a good idea. I am on it nearly every day and curse it just about as regularly. I mostly buy rather than sell, but the website is infuriating. Simple things such as 'save this seller' until very recently, used to take you OFF the seller's page and onto a completely different one, which would then tell you (in my case) 'you have exceeded your saved sellers limit. Please go back and delete some in order to save this one'. Why would there be a saved sellers limit? Who knows? But this is just one example of a litany of things that make me think it's run by penguins.

  29. Phone call from some years ago: Caller: We are interested in investing in your company (blah, blah, corporate jargon). Me: Are you a private equity firm? Caller: (hesitation) Y...yes. I hung up.

  30. Private equity has no concern about the viability of the businesses they buy. They only care about amt of money they can wring out via special dividends and mandatory payments to themselves. Look at Sears/K-Mart. How much money was invested in the business vs how much was stripped out to enrich the Mr. Lampert? This story is a well-told example - of the dangers of private equity ownership. In an ideal world no "special dividends" or mandatory payments should be made until/unless mandatory investments are made in the underlying business- but that would necessitate a a social commitment that today's boomers are too selfish to "commit" their actions to.

  31. @M.P. Neumann You turn a valid observation into an attack on personalities. How about thinking of the advantages our corporate and tax structures give to the "special dividends" and heavy interest payments?

  32. @Thomas Zaslavsky Clarification: This has nothing to do with "boomers". Get over that superficial labelling.

  33. The article doesn't report on the consequences of the Payless bankrupcies for the firms of Golden Gate Capital and Alden Global Capital. Did they lose money? Did they lose credibility or investors? This is key to assess the "story private equity tells about itself" and whether the failure of Payless also represented a failure for their overseers. Does the non-public status and/or accounting practices of the latter shield them from investigative reports on their bottom line? It would be good for reporters to inform readers regarding the availability of information required to make this assessment. The we would have some information to answer the question "what if they know exactly what they are doing?".

  34. @HF Very important. "Private equity" has been growing; it must make money for the buyout firms.

  35. This has been the dynamics for decades. Private equity borrows money, puts it in their pockets and then sells the crippled remainder. But what's in it for the bondholders? It must be that the junk bond interest rates being paid are high enough, and losers are infrequent enough that the bond holders are being paid too. This has persisted for decades, so if it didn't add up, the private equity folks couldn't borrow the funds to make it happen. So in most cases, the private equity managers actions to make the companies more efficient must be paying for at least part of this. But unfortunately, some of the payoff comes from selling seed corn. When they sell too much, they wound the company beyond repair, permanently destroying value that was not recognized by accounting systems or by markets. They may be getting as little as 50 cents on the dollar for selling this unrecognized future value.

  36. Sounds eerily like the business model currently being run by our Federal government. It is really going to hurt when the other shoe drops.

  37. "Think of how much richer West Germany became compared with East Germany over the four decades the country was divided." Think about which of those countries was communist and which was capitalist. Let's be careful not to throw the good capitalism baby out with the bad capitalism bathwater.

  38. @JM I completely agree. It's very easy to blame Capitalism for some of our problems, but what's the alternative? I do believe that competition is a healthy and important factor for success. Our system is far from perfect (no system is) but comparing with Socialism and Communism the answer is very clear.

  39. @JM How about which of those countries had most of its factories shipped to the Soviet Union to make up for the destruction caused by the Nazi invasion? Nevertheless, East Germany became one of the more productive countries in the Soviet bloc. It's not a simple one-factor comparison. Note to enraged commenters (if any): I am not defending East Germany. I am adding an important fact.

  40. Read "Glass House" by Brian Alexander to get an in-depth view and analysis about how private equity destroyed a business and the surrounding community.

  41. How many ways does private equity make money? Here's another way: Private equity companies break contract obligations owed toward workers, vendors, customers, and neighbors by the companies they acquire. Contract compliance often rests more on the decency of the parties than on threat of legal enforcement. The parties comply less because they fear lawsuits than because they are honorable people who think they should keep their word. Private equity likes to acquire companies that have contract obligations of this sort, i.e., obligations that can be escaped by an ethically challenged manager backed by an army of lawyers. Such companies are "undermanaged," in private equity lingo. Translation: current management is foolishly honoring its obligations. We'll put a end to that when we run the show. This will make the black ink flow! We've spotted some pension obligations to former workers. We'll just zero them out! And we'll have our army of lawyers dispense with those who complain. Bottom line: the special attribute that private equity players bring to the table is their lack of ethics. This is their special talent. They look for businesses run by honorable managers who feel obliged to keep their word, especially when others have relied on it. These "undermanaged" businesses are ripe targets for private equity's magic trick: the violation of solemn obligations. The secret sauce of private equity players is their quick willingness betray others' trust.

  42. @Roddie Edmonds Spot on. Spoken like an insider.

  43. That the first act of the so-called "transformative" managers at private equity was to extract a huge "dividend" on top of huge interest payments due on the money they had borrowed to buy the company should be emphasized a lot more. The 'ideal' private equity deal, too often, is a form of financial rape: the private equity firm has the company borrow lots of money that i used to to 'buy' the company for the new private equity owners, who then loot the financial reserves. Whatever hapless bean-counter is left behind as "chief executive" is all too often simply carrying out the resulting liquidation of a company lacking the capital or the leadership to continue as a going business. That $394 million "dividend" is the give-away, the rest was just carrying out the consequences of the original looting, and probably didn't matter very much either way.

  44. @Pquincy14 Absolutely correct. These "special dividends" go directly into the pockets of the private equity investors, which can greatly reduce or even eliminate their initial financial investment. To add insult to injury, the private equity firm will then charge the company ongoing exorbitant fees for financial, legal, strategic, and other "advice." Of course, if they are ultimately able to sell the company or take it public, it becomes a financial home run for the private equity investors.

  45. @Pquincy14 This cannot be emphasized strongly enough. It's one reason, not the only reason, I felt this article was written with blinders on.

  46. In the buyout model, the people are viewed the same way as inanimate assets like inventory, plant and equipment. A person who works for a private equity is subject to avarice of the owners. With this model, as a worker, the more skilled and paid you are, the more likely it is that you get fired.

  47. This all has the smell of a bunch of scammers.

  48. Let's take it one step further. The reason American productivity has declined is not only, as Mr Irwin demonstrates, that financial capitalism gets to borrow money on the cheap, take a company over and then suck the life out of it. It's also how that money is used once it has been 'liberated.' After all, in the USA there should be an abundance of productive investments. Why haven't the financial capitalists taken their gains and redirected them to more productive investments? Two reasons: 1) Cutting taxes for those who don't spend (i.e., cash-hoarding corporations and the wealthy) means money ends up saved. 2) But due to growing income inequality, there is simply not enough end demand from the working and middle classes to justify the private sector investing those savings. The upshot is that money ends up chasing unproductive assets like housing, art, or stock. Meanwhile, paradoxically, debt keeps growing. Growing debt shouldn't bother us, as long as that debt is used for productive purposes. But the worrisome thing today is that, due to the very weak investment that we've noted, America's ability to service that debt has not kept up. The remedy is simple: reform the tax system to recycle America's wealth into productive uses. If the private sector can't find a way, we can turn to the government. There are plenty of infrastructure projects out there to be built, research to be done, and people to be trained, to name just three. Let's get on it!

  49. @VCR: Hear hear. To have a prayer of making that happen, vote Democrat.

  50. @VCR Hear, hear, again. Note that productivity has grown; the productivity growth rate has declined. Meanwhile, the gains of productivity growth have been given to the very rich; the workers have gotten none of it.

  51. @VCR This is why since beginning of 2018, the U.S. produces a DEFICIT equal to 5% of its economy but its GDP growth is STUCK below 3% or even at just 2%. The money is simply not being deployed productively in things that make most people's lives better like healthcare, better schools, better transportation grids, better housing, rebuilding our energy infrastructure for the 21st century. The waste and corruption is MONUMENTAL if 3% of GDP disappears into a dark hole every year.

  52. So--let's re-analyze the "Death by Debt Spiral" of Payless over eight years--2012 to 2020---parsed against the stock price of Payless's major competitor, Amazon--a West Coast company, according to the facts of Mr. Irwin's NYT's article: Phase 1: 2012--Golden Gate Capital and Blum Capital, both of San Francisco, take over Payless with its $2.4 billion in revenue, 4,300 stores worldwide and load Payless up with debt. AMZN stock price in Sept 2012: $178. Phase 2: 2015--Payless begins its debt-death spiral after the debilitating West Coast Longshoreman's slowdown as ships from Asia containing millions of pairs of Payless shoes were steaming across the Pacific ahead of the crucial spring season. AMZN stock price in Oct 2015: $659. Phase 3: 2018--The nail in the proverbial debt-death coffin--the Payless Flip-Flop Debacle in buying millions of 2018 World Cup flip flops--arriving AFTER the 2018 World Cup mis-matched to Latin American Countries. AMZN stock price in Oct 2018: $1642. So--in whose financial interest was the debt-death spiral of Payless? Let's check the market today: Market Summary >, Inc. NASDAQ: AMZN 2,023.71 USD +153.03 (8.18%) Jan 31, 9:44 AM EST · Disclaimer

  53. The author incorrectly states: "When resources are devoted to boondoggles, and companies are run by incompetent cronies, everyone ends up poorer." - the financiers themselves make out like bandits, which is the whole point. Vulture capitalism and wanton piracy, couched as 'disruption', are still plain ol' robbery.

  54. Personally, when I had little kids at home, Payless was the place I went to to buy shoes for their ever growing feet. I have not been in side a Payless store is more than a decade. All my kids are out of home now and I basically wear my shoes for a very long time and buy my shoes online when needed. This article exposes the classic fact of CEOs and bean counters (seated in gilded towers far far away) not knowing the business they are in and not listening to sales people in the field.

  55. Payless was a valuable part of my family's household budgeting. In addition to killing Payless, they also hurt many families on a budget. (WalMart shoes are not as good, and online purchases of kids' shoes is Russian roulette--you really need to physically try on the shoes.) My family is completely ticked off at the private equity vultures who killed Payless.

  56. "If you're so rich, why aren't you smart?"

  57. I went into this article with the understanding that private equity capitalism was about looting companies for private equity profit, and I was not dissuaded. "For every dollar that came in the door of the company in that span, it paid out $1.41 to its owners and 38 cents to its lenders." And this was *before* investing anything into improving the business. That is looting, plain and simple. The problems with the American economy have been obvious for 40 years to everyone except the millionaire-now-billionaire class who have been too busy stealing from the poor to pay any attention.

  58. @Steve So you are now free to compete with a better idea that doesn't do all the bad things you think they did. Most people grumble about bad business, but that's how it works...the well run ones succeed while the poorly run ones go away, making space for new ideas to replace the tired and bad ones.

  59. @Steve - The Vulture-Pirate industry would be considerably dialed back were the deductibility of interest on loans for such acquisitions to be restricted; a good starting point, which would also cease the effective underwriting of such ventures by the U.S. Treasury, using Jane/Joe Sixpack's tax remittances.

  60. @David Based on the article, I think we found them. But like zombies and vampires they still exist.

  61. Hope they bring back their online marketplace. Payless' Comfort Plus heels shoe line were the best. It had hundreds of 4 or 5 star reviews. People were always surprised when I told them where I got them. I can go on and on about Christian Siriano's shoe line.

  62. "Rather than keep inventory in a back room and employ lots of salespeople, as department stores did, Payless kept boxes of shoes on open display in the store..." In other words, eliminating thousands of jobs, back in the 1950s. So, Payless was the shoe Amazon of 70 years ago.

  63. Thought 2: Let me add that "two wrongs don't make a right." USA needs to establish and maintain a stable economic floor upon which decent and dedicated people can stand.

  64. Capitalism is designed to amass capital for capitalists. That's exactly as it should be. It is ultimately the people who will decide exactly how much longer they will continue laboring to make the rich richer. Keep popping those champagne corks, Finance Bro's. Your times are just about over.

  65. I think people have a very distorted view of what private equity is. All it is is large institutions (and some rich people) pooling their money in order to invest in businesses. The reason it's called private equity as opposed to public equity is because they don't sell stock to the public. There's nothing mysterious or evil about it. For every failure like Payless Shoes, there are hundreds of examples where an investment was made in a business, and it was successful. And I guarantee you there were some very large institutions and deep pocketed people who lost huge amounts of money in Payless shoes. It was not bankrupted on purpose. But- people like to demonize things they don't understand. Hence we have all these posts where people talk about private equity as if it is something evil. It's not.

  66. @Marty Sorry, but you've very clearly never sat through a partners' meeting at a typical private equity firm. The first and only thing they pitch focuses on is the IRR (internal rate of return). The partners do not really care what the business does. Oh sure, there will be some discussion of soft issues, but the sole driver of whether a deal is pursued is expected profitability. I've worked in different capacities in finance (including private equity) and there's one constant: financiers prioritize their profits over everything else (e.g., workers, suppliers, reputation, societal benefits). Private equity isn't evil, but let's recognize it's driven by enormous self-interest.

  67. @Pitcher So if you have a better model, selling shoes to benefit the customers without regard to making money, do it. Just do it! Tired of all the envious people who think others are bad actors who sit on the sidelines and don't prove their model works even a bit.

  68. there is not a single retail success story in all of the PE LBO mania of modern times. Poster child in CA was Mervyn's. One of the greats, until Target's parent Dayton Hudson bought them , in order to rob them, to finance their expansion in the western USA. when the beast was damaged, Target left the carcass to be picked clean by the PE firm who bought them. Mervyn's died in the wake of the 2008 crash, but it was years of financial manipulation that led them to the brink. I'd suggest them as a good case study for your "expert" from U of Chicago. But those zealots do not want to understand what they and their cult leader Milton Friedman have done to our once middle class economy.

  69. The reporter may be underestimating the amount of money taken out of the company. In addition to interest on loans and dividends, the private equity firms usually collect enormous "management fees" from the companies they have purchased.

  70. Been to a casino lately? Not sure how many times we need to be reminded that the finance sector of the economy produces and builds nothing. They just manipulate the productive parts of the economy to wring money out of them. 2008 taught us nothing.

  71. @AL Creative destruction is the lifeblood. It's like you wanting adults to live another 50 years beyond the current lifespan, to what purpose, to have more feeble people with expensive medical conditions? The success of life is like the success of free markets, out with the old and in with the new, unless you can be good and strong while older.

  72. “Creative destruction”!? Is that what you call that? No, I think tearing apart companies for the benefit of a some wall street suits is not creative, but it is destruction. I thought real capitalism wasn’t gaming the system with financial tricks but making a better product. Pretty quaint I admit.

  73. The problem is that PE firms, like most entities, are perfectly fine owners when things are going well. When they aren't, they are fairly awful, as their lack of subject matter expertise in areas other than financial engineering can be fatal. Moreover, it is rare that a PE firm doesn't buy a company with more or less the maximum amount of debt that the markets/banks will let them borrow. This is for two reasons: 1. Other bidders will, allowing them to potentially outbid, and 2. the math tells you that all other things being equal, more debt and less equity invested translates into greater equity returns. The problem is that all other things aren't equal, and when the business hits a bump, that debt load limits your ability to invest in the business dramatically. Also, the cycle of refinancing and dividending capital back to the owners only makes this worse, but often leaves the owners in very good financial shape, at cost to the company, the employees, the suppliers, and the local jurisdiction. Which is another way of saying that it can end up being a transfer of wealth to the 1% from the 99%. Not shocking, I know.

  74. Private equity and hedge funds have been acquiring retail for some time, and in each instance there is a familiar pattern. They operate, invest in questionable purchases and/or volume then suddenly liquidate, sell or cause bankruptcy. Look at Lord and Taylor- owned by Hudson Bay which in turn is owned by an equity company. The flagship NYC 5th Ave property was sold to WeWork- there is no longer a L&T in NYC and WeWork is going under. Look at Bergdorf Goodman which was acquired by Neiman Marcus, then both were sold to a hedge fund. Major layoffs ensued. Yes, retail and shopping as we knew is for at least a century has changed with ecommerce playing a larger role, but the issue of stock, operational staffing, finance staffing is the same whether selling through a warehouse online or in a brick and mortar store.

  75. @robin So the rich companies like to drive themselves into bankruptcy for what, profit?

  76. @David They don't- the equity firms and hedge funds acquire the assets to cut costs and either later to sell off or use a bankruptcy protection to either restructure or close- either way eliminating their obligations.The objective is to acquire and use the assets for other acquisitions.

  77. The retail landscape has changed drastically in both good and bad ways. Online shopping is fast and easy for the customer, which is making it difficult for malls to exist. What I noticed about PayLess Shoes (I shopped there a lot over the years), is the quality of the shoes. They became cheaper made with a higher price. At one time you could find comfortable and stylish shoes for a low price. Towards the end of my shopping at PayLess Shoes (several years ago), the shoes were made of cheap materials that not only looked unattractive, but were uncomfortable to wear. A bargain is only a bargain if the quality is good.

  78. I so miss Payless. I cannot easily shop for shoes online for myself, and it doesn't work at all for kids. The sports stores only carry overpriced athletic shoes, but not the basics needed for growing kids or for simple casual wear. This is where Payless shined. No other store came even close. My hope is that it (and it's sales model) makes a return soon.

  79. @JTFJ2 As a vegetarian mired in strictly suburabn or mainstream choices (long ago, when I was a teenager) payless was the one place I could get all synthetic shoes I could afford. I have to say I was fascinated by the choices there, thinking about someone thinking about what to present. I cannot imagine a market built around consumer needs these days, only consumer manipulation and adherence to business cycles defined by expectation of return for the most detached. The system is more than unfair. It is hostile to basic decency.

  80. @JTFJ2 Yeah, personally I don't like shopping for shoes online- I have specific preferences when it comes to them. And I'm not a big fan of Target for shoes- every Target shoe I've had falls apart in 6 months

  81. I loved that Payless carried wide width business / heels.

  82. Decades ago a friend of mine who was studying for an MBA degree at a prestigious business school told me, confidently, that if you had an BA degree you didn't have to know anything about the businesses you would be running. I thought it sounded like self-serving hogwash back then and it still sounds like self-serving hogwash today.

  83. That business school didn’t happen to be Wharton, was it? Oh yeah, you were talking about a “prestigious” school.

  84. Name brands for less and the shoe fits, too. Ebay and Amazon will save you money and you get quality, too

  85. Predatory capitalism. But I repeat myself.

  86. Vulture capitalists posing as private equity firms suck every last dime out of company to put into their pockets and then throw its carcass into the ditch. They rob employees of their earned pensions. They auction everything for pennies on the dollar. They confiscate all their real estate where much of the company's wealth resides forcing remaining stores to pay astronomical rents on property once theirs. Look what they did to Sears. A travesty that should be criminal. Look at all the companies that fell victim to their attacks during the Great Recession and the millions who lost jobs because of it causing unemployment numbers to skyrocket 15% -16% in distressed areas. This was the underlying story that never got its full credit for making the recession so much worse than it had to be.

  87. Leveraged Buy-outs ("LBO's") should be made illegal. Payless. Toys-r-us. Countless others. All destroyed by greed.

  88. @Karl What about your home mortgage? Should that be illegal? A home mortgage is an LBO too.

  89. @GMooG If i pull out equity from my house I have to pay it back. If I go bankrupt, it becomes much more difficult to secure a loan. PE firms dont have to worry about those issues to the same extent. They can pull out cash and walk away from company, leaving it more debt laden then before the buyout. I dont have a problem with PE, I just have a problem with the laws they've lobbied for. If you run a company, you need skin in the game.

  90. Private equity, let me count the ways: Gracious Home Fairway Payless What others will be left in their wake?

  91. Reagan had it wrong (once again). The scariest words in the English language are, "I'm from a hedge fund. I'm here to help."

  92. I'm not sure what this article's point is. A discount shoe chain was taken private, was mismanaged and failed. It happens all the time in business. As the article points out other companies were taken private and were made stronger. As for the bemoaning about the demise of the discount shoe business, haven't they been replaced by outlet malls and the internet ? There's no shortage of cheap shoes or even inexpensive Nike's

  93. My wife buys 90% of the family's shoes and clothing from eBay and Amazon. Name brands (and quality, too) for less.

  94. @David name brands from e-bay and amazon? Are you sure? The jungle of counterfeits.

  95. @David 'Name brands' - are you sure? Amazon and eBay are leading purveyors of fraudulent copycat products and doing everything they can to evade responsibility for that.

  96. "Finance-driven capitalism was supposed to make the economy more dynamic." Just another big lie. It was only ever intended to do one thing. Make wealthy people even more wealthy while destroying everything in its path.

  97. This happened to Qualcomm and Toys R Us, too. Many people lost the jobs they had held for decades. No one benefits except for the vultures pulling the money out.

  98. Wall Street and finance isn't about bringing needed money to Main Street. It's about vulture capitalism, picking aprt Main Street and selling it's shiniest parts for a profit while the rest of the organization slowly dies. That's what Wall Street is all about. Just ask Goldman Sachs.

  99. This article should have been confined to the Payless story. Instead is meanders into so called "good examples" of Private Equity and we have no way of looking at those from a 360 degree perspective-- as in was it goof for consumers, their workers instead of not just tanking the company. Also not sure why you go into labor productivity. Unless, there is some drill down examples, don't understand where this was meant to go. All in all, a disappointing story as is seems to digress in a way that might suit the author's bias.

  100. "Finance-driven capitalism was supposed to make the economy more dynamic. A failed shoe chain shows why it hasn’t happened." "Dynamic" did happen. Payless was treated very dynamically. Money seeking money does dynamic things to businesses all the time. Just don't expect "dynamic" to mean the business and jobs are still there when the capital flits off to the next shiny object.

  101. "Owners of companies look to make a profit; sometimes they succeed." Is that a good summary of the whole article here? The article does not mention interest rates at all. We've had abnormally low rates in the US for the last 10 years. When debt is as cheap as it is, it's no wonder the private equity industry has grown as quickly as it has and why some poorly-though out deals are getting done. If there was $10 on the floor, would you pick it up? If yes, then you're reacting to the same instinct that a PE firm has - it's free money, why don't we go for it? Many are making typical inane comments about "vulture capitalism" without regard for the conditions that are fostering it.

  102. A pity. I bought my shoes at Payless---good quality at excellent prices. I miss them. But the disorganization was evident. Once, taking advantage of a buy one, second 50% off offer, the clerk and computer system got hopelessly tangled up. As far as I could tell, it gave me more than I was entitled to. I didn't want to take unfair advantage, but there was no way to figure out what was going on and make it right.

  103. Whose money did the masters of the universe spend? Isn’t that the most important question and the beginning of the search for the answer? If the masters of the universe are so talented, why don’t they start actual companies, you know, ones that sell products for more than the cost of the products?

  104. "Barbarians at the Gate"

  105. Payless is a good example of an endemic and far-reaching problem, not just with private equity. Boeing didn't need to be taken over and gutted by private equity. Their disastrous decline (set in motion over at least a decade and a half) has been marked by many of the same issues described here: financialization (core goal is maximization of share price and dividends, rather than designing, building, maintaining safe aircraft for the long haul) and disdain by boards and upper management for the expertise of the practitioners who make the core business function (who needs to listen to engineers or line workers?). The shortsightedness of the recent American model of turning everything into a financial instrument has long-term consequences - in Boeing's case, they are now damaged for at least one or two decades (several years to get back up to speed on 737s, no new single-aisle plane anytime soon, while Airbus and Comac will fly ahead). This has played out across the U.S. over the past several decades. We are in trouble.

  106. Private Equity is a misnomer, it’s really Pirate Equity.

  107. I read this with interest, as the employee of a government contractor in aerospace that has just been sold to a private equity firm. We shall see.

  108. I hope your resumé is up to date.

  109. The common practice of bringing in new C-Level executives from outside the company, rather than hiring internally is probably the real gorilla in the room. There are way to many C-Level types who have absolutely no experience in the business (or role) who get these high profile jobs purely through connections. I think many of us had to listen to the new CEO ramble on about his background, peppered with the words “my dad” and how his music degree from Northwestern qualifies him for his new role in pharmaceuticals. Extra points for the Sunset CEOs who sit on dying companies for years just to collect a lucrative paycheck. Looking at you Sears!

  110. "labor productivity — the revenue generated per employee — rose by 7.5 percent" Here you go: fire 7% of the employees. Tell the remaining 93% that if they don't work harder and make up for those who were fired, they will be fired too. I am a financial genius. Can I have a billion dollars, please?

  111. @Les Productivity very rarely makes the customer any happier- it can be making things more efficient such as streamlining processes, but it's often just a fancy word for "doing two/three/more people's jobs". What that means for the customer is long lines, poor quality products and service and in the case of "productivity" for healthcare, sometimes death.

  112. Finance should serve and support productive businesses. In the US economy now, it is the other way around. The financial sector has engorged itself by extracting assets from companies, like leeches. It produces huge wealth for a very few who take a lot and make nothing.

  113. @MEM "who take a lot and RETURN nothing"

  114. Can anyone explain to me why a one-time dividend payment to share-holders that amounted to $352 million was a) even considered at a time when the company wasn't even asking that much a year and b) not (in this article at least) flagged as the reason the ship went down? I am not a business person. What is the upside to paying out big dividends to shareholders when a company is struggling? Anyone?

  115. @Jessica T I will try ot give you as balanced an opinion as possible. I have been in the hedge fund, leverage buyout, private equity business for 35 years and made plenty of money. The basic business model is to make as much profit as possible in the shortest period of time, and move on. The industry is not interested in running manufacturing business; they want to make transaction happen where they can get as much money out of the system as possible. In this case, and agreement was probably made between the sellers advisors and the funding institution/buyer, to pay a 3-5% fee to the financing group, up front, which they deal makers can pocket. Its all legal, and the lenders get a year fee as well, regardless of the state of the business. The industry is allowed to borrow money from the Government at a discount rate of 3-4% and then make deals that pays back 10-15% or more, or in the minimum, 8%. At the present time, the hedge funds can borrow 16 times the capital they have on their balance sheet and are free to do what they want. If it goes bad, like in 2008, the Government steps in. Up until the mid 80s, business grew based on productivity, but when the buyout industry got started the basic principle of Capitalism changed and the result is what you see now: a depletion of the capital wealth of the middle class. I made the decision to change objectives and aim for a more equitable system because this the one we have is getting close to the edge of the cliff.

  116. @Jessica T Private equity firms report IRR (internal rate of return) as a performance metric. IRR is the percentage rate at which the time-discounted value of cash flows of a project or investment is equal to zero. Generally a successful investment's cashflows are big and negative to start (i.e., it costs you money to buy a company), small and positive over a few years (i.e., you get paid a small dividend each year), and finishes with a big positive cash flow at the end (i.e., you sell your company). Higher IRR, like let's say 15%, is better because it implies that you would have done the investment even if the cost of money was 15% per year. (In reality, today the cost of money is probably like 4-5% for private equity investors.) So what does this have to do with dividends? IRRs are driven up by larger positive cash flows during the beginning of an investment. If you can pay yourself a large dividend shortly after investment, this could drive your IRR upward and may help you market your next fund. And if a bank is willing to lend your company the money to issue this dividend, why not?

  117. @Jessica T excellent question. Boeing, Wells Fargo and Volkswagen are other poster children of companies with supposedly brilliant CEO's recently making incredibly stupid, short-sighted and shareholder profit driven decisions that have brought disgrace to the name brand, and eventually lost them billions. Some folks never seem to learn.

  118. Productivity: Run the company on a near starvation diet. The workers earn just enough not to quit with bare bones benefits. CxO and PE firm reap up the “productivity” gains.

  119. @How Much Is Enough? Don't forget to steal the pensions on the way out. I think that's in the Hedge Fund playbook.

  120. Stories about private equity taking over a business always closely resemble the plot line in Goodfellas about the mafia taking over a restaurant. Borrow money on the company’s credit to pay yourself and when it finally goes out of business burn it down.

  121. @DatMel - It is EXACTLY the same thing. By the way, when the mob does it, it’s called a “bust out.” At least they don’t hide behind fancy words.

  122. I grew up getting shoes from Payless (when we got new ones at all) and the old familiar sense of worry, inferiority and generally barely getting by of that time is burnt into the old Payless orange in my mind, the stacks of boxes, the Orange Julius stand in the food court. That wasn't a consumer experience that meant anything good to the people who were buying it. PE or not, it was a business that was waiting to be crowded out by something more convenient. Something more beautiful was never in the cards.

  123. @Telecaster I'm sorry you think payless was so awful. I loved shopping there as did my friends. None of us have a lot of money, but it made us feel like we did because we could buy a few things and still have money left over.

  124. What's the issue? Hedge funds and private equity did just what they're designed to do: take over a going concern and strip it of whatever they can for the new owners, then go bankrupt and leave the creditors to fight over what little assets may be left. Mission accomplished.

  125. Isn't it convenient that these groups can go bankrupt and dump their debt, while students cannot do the same. And the insistence on immediate and substantial shareholder profit in this case is just a microcosm of the business principals that are leading many Americans to consider whether a socialist president might not be in the best interests of the country. Meanwhile, the masters of the financial universe wonder why the average American, whose shopping drives the economy, are not spending more money. Perhaps because their 3 gig economy, minimum wage jobs don't even meet the threshold for paying rent, health care premiums and buying groceries. Maybe in the long run, greed is not so good.

  126. This is the same thing that occurred to Sears and K Mart. The underlying business was not necessarily in bad shape but being saddled with debt is what ultimately did these companies in. We have to distinguish between high finance and running a business. The former is a part of the latter. But in today's environment, financiers are equated to being businessmen. Nothing could be further from the truth. I hold an MBA with a track in Finance. But today, I don't work in the finance industry. The practices there turned me off, with its emphasis on eternal growth. I learned in business school that for a business to prosper it must master a few fundamentals that would leads to it being the low-cost producer in its industry. With that it has pricing power and can match any competitor. These fundamentals are not stressed; it is what's been done on a quarter by quarter basis that is important. Perpetual growth is the mantra. Why can't companies be satisfied with having a decent margins on the sales they have? Why the need to search for more and more growth? If companies would deemphasize growth and look to being the low-cost producer and therefore have pricing power in the market place the margin of the business would be decent and the company would continue to be viable within its environment. If business can get back to the root of good business, we wouldn't need to move production to China or to have so much upheaval that result in people losing their livelihood.

  127. @RAB The company I work for was recently bought by an investment group. We went from an emphasis on quality and repeat business to an emphasis on quarterly growth and increasing EBITBA.

  128. @RAB I think I can answer that one RAB. The reason businesses can't be satisfied with a reasonable profit margin is that investment flows to companies that appear to offer the highest rate of return. So the PE industry wrecks companies while making them appear to generate huge profits for a year or two, then selling them to suckers who discover too late the mess they've gotten themselves into. A sensibly run company with a reasonable profit margin can't attract the financing it needs to maintain its competitiveness and dies a slow death. I got schooled in this about 12 years ago when the Times did a major story about how the PE industry completely destroyed the entire American mattress industry. No one cared then and it appears no one cares now.

  129. The Masters of the Financial Universe know exactly what they’re doing: running the tables in a fast-moving big money casino. The underlying elements, be they businesses, real estate, or old fashioned instruments like mortgages, are only the chips.

  130. ...and then there's Sears...

  131. Blum is Feinstein's husband. Probably what these billionaires did to close Payless and make millions of dollars is legal, but not moral. Thanks to immoral politicians it's legal.

  132. Don’t you know? All products are the same. Anyone can manage any company. Just ask Boeing

  133. "Their willingness to cause some pain — to close factories, lay people off, renegotiate arrangements with longtime suppliers — is, many economists argue, a feature, not a bug" Here's an idea: How about applying the same 'feature' to the economics industry? Miserable failures in economic theories as well as their application would result in mass firings, public shamings of universities that churn out incompetent frauds, etc....

  134. Don’t get distracted by penny ante sectors like universities. Go after the banks - that’s where the money is.

  135. 'Private Equity' a paradox? Can you think a single reason it should gain our support, given it has no social value...other than exploiting those of us clueless as to the harm it may cause to the millions of unsuspecting folks contributing to it's success...while too many are left stranded, holding the bag?

  136. We citizens will remember what these billionaires have done to our American companies, leading to depressed communities and worthless stock for average people. We will remember who to target and where in the tropics they’ve parked their “earnings” when the time comes for us to get revenge for them robbing us blind all so they can profit from bankruptcy and real estate deals. The list is being added to each day, and these “kings” will not be able to hide anywhere on this planet.

  137. @Chris McClure. — If only the Electorate would think and remember, but I doubt they ever will.

  138. If businesses don't fail, you don't have free markets or improvements over time. Poorly managed companies deserve to die. Too bad our poorly managed federal government that taxes in ways to prefer some over others in violation of equal protection, just keeps getting bigger and more expensive with no benefits to the citizens who are forced to endure it. If customers like it, it'll do well. If not, say goodbye and let the better solutions bloom. Why prop up a dead tree when it can be a nurse log to the next generation?

  139. Wall Street and the banks and the entire capitalist system are the dead trees propped up by taxpayers. In a better country, looters like Wells Fargo, Bank of America and Goldman Sachs would have disappeared after they caused the 2008 financial crisis.

  140. I remember when Payless went through explosive growth--it was so impressive. The PE firm that insisted on the World Cup footwear is hopefully out of business. Retail is about having the right product at the right time at the right price, particularly in a field where even the best minds make costly errors. If a PE firm uses its clients money to take over an industry stalwart, it better understand that industry inside and out. What galls me is the arrogance of the PE people.

  141. This sounds like the future for Tim Hortons( a so-called Canadian institution) Don't make enough money selling mediocre coffee and reheating frozen donuts trucked in? The geniuses in Brazil said , lets sell all sorts of food products for breakfast , lunch and supper and compete against McDonalds. Would of been better off listening to the Canadian managers and customers about brewing coffee that tastes as good as McDonalds and making the donuts fresh in the kitchen of the location where they are sold. Innovation is nice but only if your launching rockets into space, not making donuts

  142. The American economy has become markedly less dynamic. Fewer businesses are being started, and the newcomers are having less success unseating incumbents. Workers are less likely to change jobs, which suggests labor is not moving toward the most productive forms of work. Many major industries are becoming more concentrated among a few giants. Copyright laws have stopped innovation....

  143. @1st Armored Division 1971-1973 Yet you frequently hear that companies are struggling to find skilled workers. Why aren't people moving to the jobs? The lack of affordable housing?

  144. @1st Armored Division 1971-1973 What's "innovative" about copying someone else's work?

  145. @Avarren Some countries pride themselves on "copying and improving" while others pride themselves on making inferior copies. Then again, it's still copying.

  146. Some interesting arguments made here, but the thesis is not well-executed. One missing point would be more examples of similar failures by private equity to understand the businesses they've acquired and to cause them to ultimately fail in the US market. Another point missing is more illumination on the concept presented here that private equity ownership is stifling competition. But very commendable in attempting to address the alternate possibilities to the thesis that private equity is slowing economic growth.

  147. Private equity is just a way of taking out "excess capital" from companies, supposedly through the improvement in financial indicators, this line has been circulating since the days of KKR and Michael Milken and during its reign we have seen a lot of sinking ships, Sears, Kmart, Payless, etc, all drown by a fateful combination of exaggerated dividend payments, business refocusing and other similar techniques to "reward" those who put capital in the optimal place and which end with business closures and shady real estate deals.

  148. @Camilo Blanco Exactly. Just about every retail company that has been acquired by private equity has shoddy products and consequently declining sales. If you sell expensive junk of course people aren't going to buy it. Why would they when they see the appalling quality? Needed some quality binders and walked into a Staples. Every binder I was interested in reeked of a funky plastic smell and would barely cover the cardboard underneath. The following year the supply of the same binders was better, but their price had more than doubled. Needless to say, I wound by getting quality binders at an used office supply/furniture store. AliExpress and other Chinese retail sites are expert peddlers of junk, and they sell it as a fraction of the cost.

  149. @Viv "If you sell expensive junk of course people aren't going to buy it." I'm not so sure of that. A lot of expensive junk seems to sell.

  150. @Viv There's sometimes (if not often) a problem with quality control. A good many off shore manufacturers are great at bait and switch. They show one grade of samples to the buyers and if they buyers don't watch it - what is often delivered in nothing of the same quality. By cutting out the quality control center at Payless the new owners simply assured that would happen - factor inspection is a joke. Sometimes it has horrible consequences in the case of aircraft.

  151. Reading this, my thoughts wandered to the way the Trump administration has tried to manage the overall US economy to produce the illusion of strength through metrics: a booming stock market that benefits few, low unemployment in which millions earn less than subsistence wages, cutting protections and services partly to offset huge tax cuts that benefit the very rich and corporations but inject little into developing the economy, especially in the manufacturing sector that’s currently in recession. It’s all out of the playbook of the pirates of private equity. As Elizabeth Warren says, this works great in the short term for the upper crust of financial manipulators but doesn’t do anything for the rest of us and the overall economy. It’s the MBA version of meth and just as destructive. The financialization of the US economy is a grift and Americans are the marks.

  152. @Pottree Lately, I have been hearing many people crowing about how great their 401Ks are doing and isn't life great now that they are rich. Good times, baby. To me it sound just like the end of 2007 when everybody was crowing about how much their house was worth and wasn't life great now that they were rich. Good times, baby until the fall of 2008 when everything came crashing down. Today sounds so much like then sometimes I have to look at a calendar to be certain what decade I'm in.

  153. The real problem is private equity (and ever worse hedge funds) are there to get as much out of the company as quickly as possible, and despite what they claim they don't have a long term strategy. What they call productivity gains are not based in making workers more efficient or implementing improved processes, that 'productivity' is done by getting rid of employees (and not surprisingly, getting rid of senior employees who actually know the industry but who also make more money) and either relying on stretching employees to the limit or relying on new hires at the management level who make less but know less, too. One of the lessons of the go go 80's, when middle level manager became a curse word to the takeover set and were eliminated, was they found out pretty quickly how much it bolloxed up the works, that rather than being an obstacle, they were a solution. Fundamentally private equity and the like want to do things rapidly, get money out of something quickly, and it leads to a company basically getting gutted. Just look at Sears, look at Fairway markets, to see what private equity can do to a company.

  154. The professors quoted on productivity improvements gave us figures for two years post going private transactions. However typical holding periods are closer to five years or a little more for PE historically. Acquisition targets are chosen for perceived cost cutting or industry consolidation opportunities, ie the private equity genius is in the buying not the managing - the productivity benefit quoted is selection bias, doing what a turnaround management team might have done. Nevertheless the two year window is important. Internal rate of return is a huge metric for PE to the effect layering on debt and taking out cash in recapitalizations from day one of the deal is SOP for acquisitions of companies in mature industries. Nothing bumps up IRR like getting cash out quick. This article is quite constructive for laying out differing impacts and goals of PE over time, as one old enough to remember PE in the 80s, but the quoted professors are polishing credentials for speaking gigs at this millennium’s versions of the Predators Ball - and advisory work. In the interest of disclosure my research has included reading 10s of thousands of PE firm emails, hundreds of depositions, and analyzing an acre of excel spreadsheets in the context of bankruptcy and disputes between firms. The resumes of the PE guys are awesome but scenarios where anything approaching the unalloyed good portrayed by the industry’s advocates are rare and more like venture capital than the big buyout model.

  155. One problem is that your annecdote about PE doing good is wrong, wrong, wrong. Since DD was taken over, the donuts are terrible and the coffee is worse. After a life of subsisting on DD donuts and coffee, I won't step foot in one. And I know many people who feel the same.

  156. @Flick Lives Lost customer loyalty is an externality that does not show up on the books until the crooks are gone.

  157. @Flick Lives I agree! The food at Dunkin Donuts tastes like plastic. They are profiting more because the food is poor quality. I am mystified as to why people put that food in their bodies.

  158. @Flick Lives the biggest factor in Dunkin Donuts success is their locations, which were set years and years ago. Most of them are in great locations. the food is OK but not great.

  159. Does Elizabeth Warren have a plan for throttling private equity?

  160. @Green Tea Yes . she does and so does Bernie. I dont know about Amy and Mayor Pete, I haven't read any of there position papers addressing that horrific issue.

  161. One only needs to review the sad tale of corporate then private equity takeover of Stella D'oro in the Bronx to understand how this works. A successful company is bought by a giant corporation, run into the ground by bad management then sold at a fraction of the cost to the hyenas of private equity who make impossible demands on employees.They then strip the company of all it's value to line their pockets and sell it to a cheap manufacturer. Gone are the good-paying jobs from a successful company, ruined by mismanagement and avarice.

  162. @Scott Your description of the Stella D'Oro saga could be a template for what happens in so many corporate takeovers. Just change the company's name.

  163. In all too many cases, takeovers are characterized by two things: excessive fees to affiliates of the new owners and excessive debt-service obligations from the debt that the target uses to finance the acquisition for the new owners, who shift the financial risk of their "investment" to the target corp, its employees and retirees, any lenders foolish enough to finance the takeover, and ult the taxpayers who often are left to pick up part of the tab. Eventually, the target goes bankrupt, unable to add massive interest payments to the normal expenses of doing business. OK with me of Bernie puts a wood stake into this kind of "capitalism."

  164. While not casualty of private equity, Boeing is a victim of similar financialization with far more tragic consequences than some mislabeled shoes.

  165. @Alexandra Bangs Trump tells up all the time how good the economy is doing. Yes indeed, its going well. Wait till Ms. warren gets in their and Yang is in charge of the treasury dept, they wont know what hit them.

  166. Private Equity and Hedge Fund. Two types of business which should be strenuously regulated in the least and probably outlawed for the misery they cause across the world. They are famous for stripping everything of value out of the companies they buy, making extremely ridiculous decisions which have dire economic consequences for the employees, or raising prices on prescription drugs to astronomical levels simply because they can. The stories of successful takeovers by this type of business are minuscule compared to the economic disasters they’ve created across humanity. Here’s an idea that might dampen their zeal for pirating assets of vulnerable companies. For each employee who loses their job the owners of raiding entity serves a week in prison. For each store closed as a result of their asset stripping the owners of the raiding entity serves a year in prison. And for any town wrecked by such activity (think Sydney, Nebraska) the owners of the raiding entity serves 25 years in prison. For any person denied prescription drug coverage and dies as a result due to astronomical cost increases the owners of the raiding entity should serve life in prison as any killer should.

  167. Simply put, the corporate bankruptcy laws have allowed these private equity companies to plunder perfectly good companies and then walk away from the mess they created.

  168. I'm glad Payless is going. When I was younger and broke I had to buy my shoes there. The glue that they used to attach the shoe to the sole would always dissolve walking through the next rain. I don't know how many poor people they ripped off with a substandard product and terrible service but they can't go broke fast enough.

  169. @Hypoteneus I stopped buying there when I was a poor student The product was terrible I learned an important lesson: you get what you pay for I seldom dress fashionably because I cannot afford high-quality products every season On the other hand, my wardrobe is full of classics and many of my garments and shoes are several years old I do my best not to buy products made by near-slave-Labor in China

  170. Private equity firms are just leeches on our society, nothing good has come from their existence, except to the 1% crowd, who run them.

  171. Thank Romney and his ilk.

  172. More of our “American exceptionalism” at work.

  173. Take a look at the way Carlyle sucked out all the cash from Booz Allen Hamilton that has strapped them with a mountain of debt for a government contractor that needs zero capital spending. It was essentially a transfer from taxpayers to Carlyle and it's institutional investors. Thanks for the rehab of the mall David Rubenstein.

  174. @John Take a look at the role of AECOM, the current owner of Carlyle and the biggest defense contractor nobody knows about.

  175. Suck as much money out of a company as legally permissible then file for bankruptcy. Move on to the next company. Repeat.

  176. @Kristine If these vampires are on their game, they will use the host resources to leverage as much debt as it can - the previously dull but stable company will have an excellent credit rating. You then pull the cash out as 'legitimate' (just so long as it is legal) charges and fees. The host company then has no working capital or credit available so it can't maneuver in the marketplace and fails. The vampires get rich, and the middle class workers are out of a job, and the creditors don't get paid - so maybe they go bust too, and then there are no wages, so the beauty salons and corner stores, diners and local restaurants, and all the other local service businesses go belly up. Exceptional is one word for it.

  177. @Kristine That is why Mayor Pete didn't want to talk about what he did at the vampire company he worked for. would of ruined his fresh face look as if he is not a vampire capitalist, like Bloomberg he has a new outlook on life he wants to run for president . Bernie/ Warren have the knowledge to break the back of Wall Street corruption

  178. The answer is in the article. "Meanwhile, the company made huge payments to its private equity owners." Finance-driven capitalism is known in less polite society as vampire capitalism. I am sure that the private equity owners were delighted with their results. That it was achieved by sucking the life blood out of the business makes no nevermind to them.

  179. @David Rose Isn't there a former GOP presidential candidate (currently a member of congress) who played that game until money came out of his ears?

  180. @David Rose Bernie/ Warren talk about it all the time. We work is another example of vampire capitalism and so was Barney's No one cares about the employees, pension plans, health care, it doesnt matter. Wall Street is doing well by destroying America

  181. @Mark Shyres Blum Capital is owned by Diane Feinstein’s husband. Unfortunately, it’s not limited to Republicans.

  182. Why hasn't finance-driven capital of the last few decades created faster growth? Primarily because that's not its mission. The mission is to make as much money as possible for themselves and their investors, at any cost to the financial well being of the organization or its employees.

  183. You need to add: ‘as quickly as possible’

  184. That says it all ... For every dollar that came in the door of the company in that span, it paid out $1.41 to its owners and 38 cents to its lenders. That left the company with less of a financial cushion to ride out any future challenges. And the future, as it turned out, held some major challenges.

  185. "Because it's wreckable." Gordon Gekko. No one, Not one single person on earth builds a company against wreckability. It is built to make a profit producing something. That management structure is not sitting through self defense meetings and raiding deflection meetings. Although they ought to be. Each and every business should now have an in-house Opposition Research Team. Under a very tight NDA contract.

  186. One of my grandfathers worked in a bank after school. He cleaned the premises and counted up the pennies and nickels and dimes and quarters. After he finished High School he became a Teller. After a decade he became an assistant manager. After another decade he became a manager. He knew everyone who visited the bank and a rough idea of the savings, checking and mortgages and their other loans. As the Stock Market speculation became greater and greater in 1929, he warned his customers to get out of the market and refused to make anymore loans until the "Banking Crisis" was over. The bank survived the Depression and in 1940 he became President of the Bank. Up to the day he retired he never stopped being a Teller for part of the day, he sat down and met with customers about loans, he stayed after closing hours and helped to clean up and he counted the pennies, nickels, dimes... All these Finance people need to be asked about how much time did they spend actually working in the type of business they are buying up. If they don't know how the business is run from the newest hire to the oldest hire, they should not be allowed to buy up the business.

  187. @John Brown Hedge fund managers have a goal to run companies into the ground. They attend elite schools yet have no idea how the real world works nor do they care. We work is another perfect model of no business plans buying up property where people go to work in a perfect living room. Is that a business that has merit? When I was a teacher I used to buy my students shoes from Payless. As a teacher I didn't have much money and the kids needed shoes and we were able to achieve our goal. I am sorry to hear that they have gone out of business. When a product works Wall Street ensures that it disappears for something like We work . the managers make money and could care less about customers ,employees pension plans and their lives.

  188. @Tony When will we, if ever, control the greed of the Elites ?

  189. Great story! That's how business used to work. I won't bank at Chase, because you walk in, stand in a long line, and these twits in suits greet you and say "how can we help?" and basically do nothing. I say, "stand behind the counter there and work as a teller," and they are all shocked that I'd suggest such a thing.

  190. Almost all of our greatest corporations started as entrepreneurial ideas of their founders. Think of Carnegie, Ford, Jobs and Gates. None of these men built their companies with the ideas of how they could extract the most wealth from the company. These are the true "job creators" not those who financialize industry.

  191. For many private equity firms their real business is buying and selling companies. This means that their main purpose is to make the company seem more profitable in the short run. Often this involves shedding expensive, usually older and experienced staff, closing down essential but unprofitable or marginal parts of the business such as R & D and similar support functions. Profits go up not through any increase in sales, but through unsustainable cuts to costs. The company is then sold and soon after fails. The logic embraces short term greed with no real business plan for the long-term.

  192. Short sighted and stupid. that is America business these days

  193. @sjs Politicians too.

  194. What about the retailers that are barely hanging on after their buyouts? JCrew, Gap, Eddie Bauer, and several more. The quality of their products went way down after the buyouts and of course the prices went up markedly at the same time. Customers are staying away because why wouldn't they?

  195. @K Henderson I wondered what happened to the gap. I used to shop there almost exclusively. Now it’s hard to find anything I like.

  196. @Claire Me too. I have had clothes I bought there in the 90s that I wore for years, such nice quality. Now, their quality is the same as any discount store but with a bigger price tag.

  197. Bain under Mitt Romney did the same thing with Friendly's. Very common with private equity. Bunch of bums just out for the money.

  198. This is a terrific article! I was always surprised that Payless didn't use a franchise model. I liked getting shoes there. Now, I turn to Amazon. Seems that there is still an argument to be made that right sizing the company could have kept it around.

  199. Is Barnes and Noble next in line?

  200. @Kevin Already happened -- my regular drinking buddy used to give me updates. Christmas 2018 the stores around here were empty because they laid off most of the logistics people and couldn't get product into stores. Total chaos of late unorganized deliveries in hundreds of UPS boxes. Then they laid him off in the new year. Wonder why sales were bad?

  201. From the very beginning, this approach to business has been a disaster for everyone but those who made out like the bandits they were. You should not be excusing that. Like supply-side economics, this is another hoax that has raped the country.

  202. This is an old story of the arrogance of those who are very successful at one thing and therefor conclude that they are going to be very successful at everything. Well, not exactly. Being really smart isn't very useful if you aren't smart enough to recognize what you don't know and listen to those that do. Bottom line, when it comes to buying a cake, I'm looking for a great baker, not a great banker.

  203. What I don't understand is why people who do these jobs -- and no I am not going to call it a career -- aren't scorned the way we justifiably scorn other con artists, professional gamblers and dishonest car salespeople? Why is this still okay, even valorized -- e.g. Pete Buttigieg who couldn't wait to turn all his meritocracy chips in for a gig at McKinsey? These people act like they are the smartest people in the room -- and maybe they are -- because those of us who always knew better, even 20, 30 years ago, don't properly call this out. Folks, don't let your kids grow up to work on Wall Street.

  204. "Private equity" has the same business model as the Mafia in "Goodfellas." Take a controlling interest, run the place into the ground, exhaust the credit, and then walk away when it finally fails. These people are not businessmen in any sense of the word. They are well-funded looters.

  205. These “Companies” make their money by borrowing money to “buy” a company that is supposedly in trouble. All the debt goes to the company they “bought,” 'not the company that “bought” it. Their “fees” are taken out of the loans to “buy” the company. So, the company is loaded with debt and the “buyers”have already made their money. They may try to”turn the company around” but in reality hey could not care less if it fails. I’ve seen the Wharton folks in action. They are not impressive. Most have never actually started a company, or even run a company and all they know is what some other Wharton person told them. They are mostly clueless when it comes to actually running a business. But they did learn how to run a lucrative scam, so I guess there’s that. Why would anyone think this useless activity adds anything at all to the economy?

  206. Add to that eviscerating any company pensions in place (see Bain capital) and the worker takes it on the chin with no recourse. If private equity were taxed correctly, the incentives would be a lot different.

  207. Key quote: "Meanwhile, the company made huge payments to its private equity owners." The terms for this are "asset stripping", "value destruction", "theft", and "corrupt behavior". This is what is wrong with our economy. Those who work to produce a good product at a fair price with a dedicated and motivated workforce have no chance whatsoever against a well-lawyered group of private equity thieves who buys them up and destroys them. This is also why most of the income and equity gain in the country goes to the top tiny fraction of the population. They have now purchased our government and have used it to cut their expenses (income and business taxes), and are seeking to further cut these expenses. This article describes a particularly destructive form of theft, but in an "oh, so both sides" way. This is legalized blackmail and theft.

  208. It's like allowing termites to eat your house.

  209. Private equity will be the death of capitalism if real business people don't lead a revolt to change the laws.

  210. The board chose a man with a deep voice and a strong chin, obviously a decisive leader. Passion for shoes and an artist's eye for inspired design are no part of the job!