Fred’s to shutter 159 locations and downsize offerings

In a press release, the discount retail chain said the store closings are happening as it ‘evaluate[s] strategic alternatives to maximize value.’

Freds_Store_Closures

On Thursday, the retailer announced that it’s closing almost 30% of its stores by the end of May and immediately launching “going out of business” sales to liquidate merchandise.

On Thursday, the retailer announced that it will shutter at least 159 underperforming stores in locations across 13 states, with the largest amount in Tennessee, Mississippi, Georgia and Alabama.

USA Today reported:

In 2017, a deal for Fred’s to acquire hundreds of Rite Aid or Walgreens stores collapsed when a mega-merger between the pharmacy giants deteriorated.

Months later, Fred’s announced it was considering “strategic transactions and alternatives for certain non-core assets,” including real estate and specialty pharmacy business.

Last September, Fred’s reached an agreement to sell the pharmacy patient prescription files and related pharmacy inventory of 179 Fred’s stores located across 10 southeastern states to Walgreens for $165 million.

With Thursday’s announcement, Fred’s said it is “continuing to pursue the sale of its remaining pharmacy assets as part of its previously announced plan.”

In a press release with the jargon-packed title, “Fred’s retains PJ Solomon to evaluate strategic alternatives to maximize value,” the company wrote:

… The review will include a thorough evaluation of the Company’s current operating plan, as well as all other potential alternatives to maximize value.

… Joseph Anto, Fred’s Chief Executive Officer, stated: “After a careful review, we have made the decision to rationalize our footprint by closing underperforming stores, with a particular focus on locations with shorter duration leases.  Most of these stores have near-term lease expirations and limited remaining lease obligations.  Decisions that impact our associates in this way are difficult, but the steps we are announcing are necessary.  We will make every effort to transition impacted associates to other stores where possible.”

On Thursday, Fred’s also launched “going out of business” sales in all but 37 stores—7% of its retail footprint. According to SB360 Capital Partners, the firm leading Fred’s closing sales, the effort to liquidate merchandise should prove successful.

USA Today reported:

With most of Fred’s stores in smaller communities, Aaron Miller, an executive vice president with SB360, said they’re expecting “a pretty strong response from the customers.”

“Fred’s has a loyal following and we’re expecting increased traffic,” Miller said. “The merchandise will go quickly.”

… Fred’s will remain “a one-stop shop with continued replenishment of food staples,” Miller said, noting milk, eggs, beverages and frozen items would be restocked throughout the sale.

So far, the retailer’s efforts to restructure its business model has inspired confidence with investors.

“Fred’s shares are up 10.6% for 2019 so far while the S&P 500 index SPX, -0.03% has gained 15.2% for the period,” MarketWatch reported.

Reuters reported:

Fred’s shares, which have lost nearly 80 percent of their value since the company was forced to scrap its bid for 1,200 Rite Aid Corp stores in June 2017, rose 2.9 percent to $2.15 in early trading on Thursday.

The retailer is the most recent chain to downsize by shuttering stores. Sears recently announced a new plan for scaled-down shops to help it rebound from bankruptcy, and organizations including Gymboree and Payless ShoeSource have closed locations this year.

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