When a company files for Chapter 11 bankruptcy, it places itself under the jurisdiction of the court, as well as its lenders and creditors. While some companies may enter these proceedings with a clear plan, objections from any of these parties can quickly derail those plans, leading to chaos and uncertainty.
Red Lobster’s Bankruptcy Struggles
This reality played out recently with Red Lobster, which filed for Chapter 11 bankruptcy protection. Upon filing, the restaurant chain swiftly closed the locations it deemed unprofitable. Red Lobster’s strategy involved renegotiating leases at over 100 other locations to reduce both monthly rent and outstanding back rent. However, many landlords were unwilling to accept the chain’s proposals, complicating efforts to settle old debts and reach new rental agreements.
As a result, while Red Lobster is expected to survive under new ownership, its size and market presence will likely be smaller than initially anticipated. The chain will almost certainly end up closing more locations than it initially planned.
Rite Aid Faces Its Worst-Case Scenario
Similarly, Rite Aid encountered significant challenges after filing for Chapter 11 bankruptcy protection in October 2023. The company announced plans to “optimize the company’s store footprint,” a euphemism for closing hundreds of locations. In their statement, Rite Aid indicated that it would regularly evaluate its store portfolio to enhance operational efficiency while meeting customer needs. The court-supervised process would allow the company to negotiate better terms with landlords while closing underperforming stores, thus reducing rent expenses and bolstering financial performance.
While Rite Aid did not disclose an expected number of store closures, Garrick Brown, vice president of real estate intelligence for Gallelli Real Estate, suggested a worst-case scenario of 700 store closures, representing nearly one out of every three stores based on the company’s current footprint of 2,215 locations. As of now, Rite Aid has come alarmingly close to that figure, having closed 694 stores since its bankruptcy filing.
Additional Setbacks for Rite Aid
In the midst of this turmoil, Rite Aid faced even more adverse news. Data breaches have become all too common, often met with consumer apathy. However, for a company already in Chapter 11 bankruptcy and closing stores, disclosing a data breach can further complicate its situation.
On June 6, 2024, an unknown third party impersonated a company employee to access business systems, prompting an immediate investigation by Rite Aid. The company reported the breach to law enforcement and federal and state regulators. They quickly informed affected customers about the incident, detailing the compromised data.
By June 17, 2024, Rite Aid confirmed that the unauthorized party had acquired specific purchase data, including customers’ names, addresses, dates of birth, and driver’s license numbers associated with purchases made between June 6, 2017, and July 30, 2018. Fortunately, the company clarified that no Social Security numbers, financial information, or patient information were impacted.
As Rite Aid navigates the challenging landscape of bankruptcy and operational cutbacks, these compounded issues underscore the precarious nature of its recovery efforts.
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