It’s a familiar story: a deep-pocketed investor takes a stake in a retailer, hoping to spark a turnaround or help transition to e-commerce. However, the company’s performance inexorably worsens. Some, like Toys “R” Us and Sears, file for bankruptcy while others may look like a bargain, but that's rarely the case, according to a Reuters commentary. Lenders can give retailers rope, sometimes for years, according to the commentary. That’s often the case with private-equity backers, who have the money to see firms through hard times and can extract fees and dividends along the way. But such forbearance rarely avoids a restructuring, or worse. KKR and Bain Capital kept Toys “R” Us going for years as EBITDA declined before pulling the plug. It's being liquidated. That’s a possibility for Sears as well, notwithstanding last week’s $4.4 billion takeover offer from ESL founder Eddie Lampert. Companies like J.C. Penney may appear cheap after a 70 percent stock-price decline in the past year. But retailers’ woes could easily worsen. Although U.S. retail sales have been strong for the last several years, many companies couldn't hack shifting consumer tastes and online competition. Even penny stocks can be expensive if it’s a prelude to chapter 11.
