Closing American Freight Amid Financial Turmoil | Franchise Group Files for Bankruptcy

In a significant development for the retail sector, Franchise Group, the parent company of popular brands such as American Freight, Vitamin Shoppe, and Pet Supplies Plus, has filed for Chapter 11 bankruptcy in Delaware.

The filing, marked by plans to close hundreds of stores, reflects the financial strain many retailers are experiencing in the current economic climate.

American Freight Stores Set to Close Nationwide

As part of its bankruptcy proceedings, Franchise Group announced it would shutter all 357 American Freight furniture outlets spread across 40 states.

The furniture chain, known for offering budget-friendly home furnishings, will hold major closing-down sales to liquidate its remaining inventory. This marks the end of a significant footprint in affordable furniture retail, as American Freight’s closure will affect not only its customer base but also the job security of around 3,000 employees.

The move underscores the challenges Franchise Group has faced in recent years, as post-pandemic spending shifts and rising inflation have made it difficult for traditional retail models to stay afloat.

A Debt Burden and Federal Investigation Cast Shadows

Franchise Group’s financial troubles have been mounting for some time, with debts totaling around $2 billion. A combination of factors, including a pandemic-era sales slump, inflationary pressures, and legal concerns, ultimately contributed to the company’s decision to seek bankruptcy protection.

One notable element in the Franchise Group’s complex financial situation is a federal investigation into CEO Brian Kahn’s dealings. While details remain sparse, the probe is rumored to involve business practices and potential financial misconduct, adding a layer of uncertainty to Franchise Group’s restructuring efforts.

Impact on Backer B. Riley Financial

In a twist that underscores the broader financial implications, B. Riley Financial—a major backer that supported Franchise Group’s $2.8 billion buyout last year—faces a notable setback. The investment firm has taken an impairment charge of $120 million on its equity investment in Franchise Group, highlighting the ripples this bankruptcy will have across multiple financial stakeholders.

For B. Riley, which had anticipated stable returns from its backing of Franchise Group, the unexpected downturn has resulted in a significant financial write-down, hinting at the complexities of backing retail ventures in uncertain economic times.

Stabilizing Efforts and Debt Restructuring

The bankruptcy process includes a proposed debt restructuring agreement, under which senior lenders have agreed to convert a portion of their debt into equity. This approach is intended to ease Franchise Group’s financial obligations and create a more stable capital structure. Executives at Franchise Group hope that the savings generated from closing American Freight will bolster the company’s remaining brands and create a path to financial stability.

As of now, Franchise Group plans to continue operating its other brands—Vitamin Shoppe, Pet Supplies Plus, Wag N’ Wash, and Buddy’s Home Furnishings. The company’s strategy focuses on consolidating resources and narrowing its scope to sustain the viability of its surviving retail outlets.

Outlook and Next Steps for Franchise Group’s Remaining Brands

While the closures mark a significant shift, the Franchise Group’s restructuring efforts could provide a lifeline to the remaining brands under its portfolio. The company’s leadership remains optimistic that streamlining operations and reducing debt will allow it to focus on high-performing sectors like health, pet supplies, and home furnishings rentals.

The retail sector continues to adapt to shifting consumer behavior, and Franchise Group’s Chapter 11 filing is a stark reminder of the challenges traditional retailers face. The closing of American Freight stores and the impact on Franchise Group’s employees highlight the personal toll of these economic shifts.

For now, Franchise Group’s bankruptcy proceedings represent both a cautionary tale and a potential blueprint for restructuring amid the struggles of today’s retail landscape. As the company navigates its reorganization, industry watchers will closely monitor whether Franchise Group’s strategic adjustments can stabilize its remaining businesses and pave the way for a more resilient future.