Just in Time for Black Friday: $20M to Toys "R" Us Workers

It wasn’t gearing up to be a particularly happy Thanksgiving for 33,000 Toys “R” Us workers laid off this year. Over 700 locations nationwide closed, leaving people with no job and no severance — despite many having provided decades of service to the company (and by extension, its shareholders).

But today an important announcement came — the creation of a $20M fund to help support struggling families. That should make the holidays more merry; but doesn’t solve the broader problem of both a challenging retail environment, and the disregarding of worker welfare common amongst private equity firms. This interview with Carrie Gleason — Policy Director for Organization United for Respect (OUR) and Campaign Manager for Rise Up Retail — explains why Wall Street is taking our toys… and hurting working families and communities in the process . It ends with practical suggestions of how investors concerned with outcomes for workers can shift their practices moving forward.

Q: What is OUR, and how did you get engaged on this issue?

Retail jobs are now the most common job in America. But nationwide, people in the retail industry are suffering from low pay, unpredictable part-time hours, limited access to benefits, and so many other hurdles to opportunity. This has been fueled by the industry executives and Wall Street power brokers who are more concerned with extracting every last cent of profit than they are in investing and empowering the frontline workforce on which their businesses depend.

Organization United for Respect (OUR) is a growing network of people from the largest retail chains in the country who have united to challenge the corporate forces — from Wall Street to Main Street — that are short-changing working families. We’ve made some serious progress. At Walmart, the nation’s largest private employer, OUR leaders have pushed the company to raise wages for more than 1.5 million employees, expand paid family leave, and strengthen policies against pregnancy discrimination.

But high-risk financial investments have generated a massive financial crisis in the retail sector that is destroying viable businesses and hundreds of thousands of jobs. When 33,000 Toys “R” Us families found out that the company they loved was shutting down this year and they all would be losing their jobs without a dime of severance pay, they sprung into action.

For months, courageous Toys “R” Us employees have brought attention to their plight fighting for nearly $75 million owed in severance pay with coast-to-coast activism rooted in an innovative “online-to-offline” organizing model, which allowed team members to mobilize vast numbers quickly.  Across the country, Toys “R” Us workers staged protests at closing stores, spoke out publicly and called for accountability.

Just this week, tens of thousands of Toys “R” Us employees made history in the creation of a $20 million Toys “R” Us Financial Assistance Fund by two of the company’s former owners — KKR and Bain Capital. The deal comes amidst the company’s highly-scrutinized liquidation and the shuttering of more than 700 locations nationwide, which left thousands of employees, many with decades of service to the company, with no severance.

For months, former Toys “R” Us employees and their allies  — Organization United for Respect (OUR) and its Rise Up Retail campaign, along with Private Equity Stakeholder Project and Center for Popular Democracy — have called for fair treatment. The Fund represents the first important step in ensuring that Toys “R” Us employees who lost their livelihood receive the support they were promised and deserve. And it marks an unprecedented move to help thousands of families who face financial hardship due to the retail store closures and bankruptcies plaguing the industry.

OUR and our partner organizations have been fighting for a better retail industry — one in which working families can earn a living wage, are given respect on the job, and receive a fair shake from the mega-corporations where many have spent their entire careers.

Q: Many consumers have been left confused — what the heck happened to Toys “R” Us?

The downfall of Toys “R” Us, one of our country’s most prominent retail brands, is emblematic of the toxic corporate forces that are profiting off of gutting retail companies and selling off their remains.

KKR, Bain Capital, and Vornado Realty Trust bought Toys “R” Us in a leveraged $6.6 billion buyout in 2005 to take the company private. At the time, Toys “R” Us was bringing in $11 billion in sales annually. But once it was acquired by its new owners, Toys “R” Us became responsible for paying off the massive debt accumulated by the new owners, who had borrowed 80 percent of the funds they used to purchase the company. Ultimately, the growing pressures from e-commerce compounded by the debt forced the company to file for bankruptcy last year.  

In March, Toys “R” Us’ creditors — a group of hedge funds including Solus Alternative Asset Management, Angelo, Gordon & Company, Franklin Templeton, Highland Capital Management and Oaktree Capital, among others  — chose to liquidate the company, turning down several viable business offers that would have saved hundreds of stores and thousands of jobs.

More than 33,000 former Toys “R” Us employees — many of them with decades of service to the company — laid off with no way to provide for their families. Throughout the company’s history, Toys “R” Us paid severance when an employee was laid off. Many of those who lost their jobs this year were counting on severance, estimated to total more than $75 million, to ease the financial hardship they face.

KKR and Bain created a $20 million Financial Assistance Fund to offer impacted families some much-needed support. But many of the company’s creditors and former owners, including Vornado, Angelo Gordon, and Solus Alternative Asset Management, still refuse to contribute to this fund that will help tens of thousands in need.

Q: What could investors have done differently? What is their responsibility vs. the PE firms themselves?

More than anything, investors in retail companies and the Wall Street firms that prey on the industry need to be aware of what these companies are doing and hold them accountable for their bad behavior. Investors wield incredible power to drive change, but it’s critical that they use this power for good.  

Leaders with Rise Up Retail have been pushing key investors in these companies to do just that. As a result of our efforts, pension funds across the country — including in Minnesota, Washington and NYC —  are expressing concern and support for the Toys “R” Us families.

Q: Who are these investors anyway? Retail-level? Pension funds? Etc?

What may surprise people is just how interwoven these predatory Wall Street firms are in the circles of power that influence our lives. Many state and municipal pension funds are heavily invested in the private equity firms and hedge funds that saddled Toys “R” Us with unmanageable debt and forced the company into liquidation. Elected officials also have ties to these firms — reports last month showed that outgoing Florida Governor Rick Scott has invested millions of dollars in Angelo Gordon’s funds, including those involved in profiting off the widespread financial destruction and hardship seen in Puerto Rico in the wake of Hurricane Maria.

These investors not only have the power to push for greater accountability from Wall Street, but have a responsibility to the constituents and the communities they serve to do the right thing. This massive job losses that we are seeing disproportionately impact women who work on the frontlines. The spillover of retail bankruptcies and store closures has created a retail “rust belt,” fueling an erosion of vital commercial tax bases and hurting vulnerable local economies nationwide.

Q: Toys “R” Us is a visible case, but clearly just reflective of overall trends in the sector. What are other cases?

The collapse of Toys “R” Us at the expense of working people is just one piece of a larger picture.

Private equity leveraged buyouts like Toys “R” Us have already accounted for 61 percent of the total 219,000 retail jobs lost in 2016 and 2017. In the grocery sector alone, seven major retail chains, employing more than 125,000 workers, were pillaged and pushed into bankruptcy by private equity owners.

Just as concerning, this massive extraction of wealth from major American employers is exposing an enormous gap in protections for working people — the financial practices employed by Wall Street that put American jobs at risk are, in fact, completely legal.

In the last few months alone, we’ve witnessed the downfall of Sears, which filed for bankruptcy after over a decade of ownership by ESL investments, a hedge fund. While Sears CEO Eddie Lampert has been pulling in hundreds of millions into his personal bank account, ESL has been stripping assets from Sears over the last several years, spinning off real estate owned by the company and several brands.  More than 200,000 Sears and Kmart workers have been thrown out of work over the years as a result of Eddie Lampert and ESL’s financial engineering. Ten of thousands of current Sears employees face layoffs as the company shutters more than a hundred stores.

But it’s not just private equity firms who are selling out their workforce for a quick buck and juice for their stock prices. While hundreds of thousands of Walmart’s part-time employees still can’t earn a living wage, the company has deployed billions to buy back its own shares.

Q: For investors who care about worker welfare, how can they be a part of reversing this trend?

Many investors, including large pension funds and others already have strong Environmental, Social, and Governance (ESG) policies or practices in place to ensure that their investments are not only sustainable, but also will minimize risk in favor of greater returns. Investors can ensure that their investment managers are held accountable to these ESG standards, and should be willing to halt investments with managers if they don’t properly respond on ESG concerns.  

For more on how to invest with impact, check out Morgan’s book.