According to The Street, When a company files for Chapter 11 bankruptcy, it places itself in a precarious position, subject to the approval of the court, lenders, and creditors. While a company may enter the proceedings with a well-defined plan, objections from any of these parties can quickly derail its intentions.
Red Lobster’s Bankruptcy Struggles
This was evident in the recent Chapter 11 filing by Red Lobster. Upon filing, the restaurant chain swiftly closed locations it deemed unviable. The chain aimed to renegotiate leases for over 100 other locations to reduce monthly payments and alleviate back rent. However, a significant hurdle arose: many landlords were unwilling to accept Red Lobster’s proposals to settle old debts in exchange for new rental terms.
As a result, while Red Lobster is expected to emerge under new ownership, it will likely operate on a smaller scale than initially anticipated, leading to more location closures than originally planned.
Rite Aid’s Dire Situation
Rite Aid (RAD) is facing a similarly grim outlook. When the company filed for Chapter 11 bankruptcy protection in October 2023, it announced plans to “optimize the company’s store footprint,” a euphemism for closing hundreds of locations. The company’s website noted, “Rite Aid regularly evaluates its store portfolio to ensure it is operating efficiently while meeting the needs of its customers, communities, and associates.” Through the court-supervised process, Rite Aid would assess its stores and close additional underperforming locations, thus reducing rent expenses and improving financial performance.
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While Rite Aid did not specify an exact number of planned closures, Garrick Brown, vice president of real estate intelligence for Gallelli Real Estate, estimated that the worst-case scenario could see up to 700 stores shuttered—nearly one-third of its current footprint of 2,215 stores. For context, Walgreens operates 8,560 U.S. stores, while CVS has 7,785.
Since its bankruptcy filing in October 2023, Rite Aid has approached this grim prediction, closing 694 stores.
Additional Setbacks for Rite Aid
Adding to Rite Aid’s troubles, the company recently disclosed a data breach that occurred amid its financial turmoil. On June 6, 2024, an unknown third party impersonated a company employee, compromising business credentials and accessing specific business systems. Rite Aid detected the breach within 12 hours and launched an investigation to terminate unauthorized access and assess customer data impact. The incident was also reported to law enforcement and federal and state regulators.
Rite Aid informed customers affected by the breach, detailing the data compromised. By June 17, 2024, the company confirmed that the unknown third party had acquired certain data associated with purchases or attempted purchases from June 6, 2017, to July 30, 2018. This data included purchaser names, addresses, dates of birth, and driver’s license numbers or other government-issued IDs. Notably, no Social Security numbers, financial information, or patient information was compromised in the incident.
As both Red Lobster and Rite Aid navigate the complexities of Chapter 11 bankruptcy, their experiences highlight the significant challenges companies face during this tumultuous process. The outcomes of their restructuring efforts will ultimately depend on their ability to negotiate effectively with creditors and adapt to shifting market conditions.
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