Art Van Elslander, the son of an immigrant, briefly served in the Army, returned home to Detroit, and started a family and a business. He began in 1959 with one furniture store on the corner of Gratiot Avenue and 10 Mile Road in what was then called East Detroit. By 2015 he owned the biggest and most popular furniture retailer in the Midwest, with almost 100 stores, 3,700 employees, and $725 million in sales. That year, Patti Smith wrote in her memoir about hanging out in Art Van stores for the free coffee and doughnuts. Van Elslander and his wife had 10 children, two of whom worked at the company. He became a community leader and philanthropist. He endowed a foundation focused on children and health. He saved the city’s 1990 Thanksgiving Day parade with a last-minute $200,000 check.
His was a classic American story. So is what happened next. Online shopping wasn’t a priority at Art Van, and by 2017, Van Elslander knew the company couldn’t compete against Wayfair Inc. and Amazon.com Inc. without significant investment. He was 86, ready to step back, and, with 10 heirs, it seemed easier to look for a new owner. Before the year was over, he sold the chain to a private equity firm, Thomas H. Lee Partners LP, for $215 million. “There is still much I want to do,” he said in the announcement. “I feel confident knowing the company and its people will be in the very best of hands for continued growth and success.” He died the following year.
Continued growth and success failed to materialize. The private equity pitch is that it will help expand business. But when retailers are burdened with new expenses amid industry turmoil, growth is often elusive. Beyond the furniture business, workers frequently report they can trace deteriorating conditions at their companies to leveraged buyouts. Research shows those businesses fare worse financially than public companies. A 2019 paper from California Polytechnic State University professors examined almost 500 companies taken private from 1980 to 2006. It found about 20% filed for bankruptcy—10 times the rate of those that stayed public. Private equity owners and investors, though, can compensate for their losses with one great success. On average, the annual returns for private equity were almost 40% higher than the S&P 500 over the past 20 years, according to Cambridge Associates.
At Art Van, T.H. Lee did nothing unusual, and that may have been the problem. As with many buyouts, T.H. Lee’s separated the company from its real estate—which sold for close to $400 million. That meant Art Van had to start paying rent to the properties’ buyers. Within a year, Art Van bought two smaller, profitable rivals, Wolf Furniture and Levin Furniture, that employed another 1,900 people. T.H. Lee didn’t take dividends from Art Van, as many firms do, but the new rental payments weakened the retailer’s finances as competition grew fiercer. While the chain’s expenses grew, its same-store revenue declined more than 25% from 2016 to 2020. Art Van filed for bankruptcy on March 8, 2020, only three years after the sale. T.H. Lee planned to close the original Art Van stores and sell back some of the old Wolf and Levin locations. It promised employees continued work and health coverage until it finished shutting down stores in May.
The pandemic ruined those plans. Instead of an orderly process and the preservation of some stores, the entire company closed abruptly. Going-out-of-business sales halted less than two weeks after they began. Also halted: all the pay, severance, and health insurance employees were expecting. They were devastated. One learned her insurance had been canceled while she was hospitalized with Covid-19; another had to undergo emergency surgery a week after losing his job and ended up thousands of dollars in debt. Shirley Smith, a sales manager, lost a month of vacation pay along with expected severance and struggled to cover the cost of her insulin. Joey Tallmadge, a finisher who had worked at the company for about 15 years, couldn’t afford to fill his regular prescriptions. “It’s unimaginable that this would happen to us,” he says.
Yet it’s happened to plenty of others, too. The coronavirus pandemic has highlighted with grim precision the inequities of the American workplace, and nowhere are those strains more apparent than in the retail industry. It’s the largest private sector employer, staffed by workers who often have little control over their schedules and don’t always receive benefits. In only the past two years, dozens of U.S. retailers have filed for bankruptcy and hundreds of thousands of people have lost their jobs. The workers often receive no warning, though the law requires it. They’re the last to get anything, which often means they get nothing. Those failed businesses weren’t all owned by private equity firms. But some of the biggest—Toys ‘R’ Us, Sports Authority, and Gymboree—were.
Here’s where this classic American story takes a different turn. The workers fought back. They used the collapse of Art Van to try to force a public accounting of what employees are owed afterward. In letters to T.H. Lee, the company’s former employees demanded that the $11.6 billion private equity firm honor its initial promise of pay and health insurance. They aren’t alone in their fight. For the past few years, activists have been pushing for workers’ rights in bankruptcy proceedings, and politicians have been calling out owners to treat their former employees better. Amid the pandemic, people across the country are acknowledging the vulnerabilities of essential workers. The fight for a $15-an-hour federal minimum wage has gained popular support and some corporate backing, including from Amazon.com, and is central to President Biden’s labor agenda. “There’s a real thirst in society for more fairness,” says Thomas Kochan, a director of the MIT Sloan Institute for Work and Employment Research. That thirst—and that pressure, especially when it comes from public investors—is changing what’s happening at some troubled companies, too. Bankruptcy judges, owners, and lenders are beginning to account for employees’ losses in their negotiations. It’s still possible to ignore workers. But it’s not nearly as easy as it used to be.
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