Rite Aid filed for Chapter 11 bankruptcy protection while dealing with losses from opioid-related lawsuits. Other brick-and-mortar retailers have experienced the same fate in recent years. If Rite Aid follows suit, it could mean big discounts are coming in the near future.
However, bankruptcy doesn’t always mean the company is forced to liquidate or sell. For example, United filed for bankruptcy in 2002, reported Vox, followed by Delta in 2005 and American Airlines in 2011. Bankruptcy also gives companies the chance to restructure while continuing to operate, suspect or reconfigure debt payment. This was the case for these airlines, which were able to get back on their feet in less than four years.
Currently, Rite Aid is in bad financial shape. The company filed a notice to the U.S. Securities and Exchange Commission, reported CNN, saying that it would be unable to file its latest quarterly financial report.
In the filing, Rite Aid said it expected its losses would increase substantially in the past quarter. CNN reported that the company has tallied nearly $3 billion in losses over the past six years. In June, Rite Aid had only $135.5 million of cash on hand and $3.3 billion in long-term debt, exceeding the value of the company’s assets by nearly $1 billion.
In a statement, Rite Aid said it secured $3.5 billion in financing and debt reduction arrangements from lenders to keep the company afloat. The company will also accelerate its pace of store closures and sell off parts of its business. According to CNN, bankruptcy could resolve the company’s legal disputes. AP News reported that Rite Aid stores will continue to fill prescriptions, and customers will still be able to visit its locations or shop online while it goes through the Chapter 11 process.
When companies close stores, its inventory still needs to go somewhere. One of the most cost-effective solutions is to sell it quickly at a lower price. Most retailers don’t have the extra room or capacity to redistribute, so they’ll take the loss instead.
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