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Fred’s to close 159 stores and start clearance sales at 360 locations

News Team

Discount chain Fred’s is joining the growing list of retailers shuttering stores amid slumping sales.

The Memphis-based company announced Thursday that it would close 159 underperforming stores by the end of May with “going out of business” sales starting Thursday as it looks to reduce its store footprint and “evaluate strategic alternatives.”

The retailer said in a statement that it retained investment banking advisory firm PJ Solomon to assess its options “to maximize value” and hired liquidation firms Malfitano Advisors and SB360 Capital Partners “to help manage the process and ensure a seamless experience for customers.”

When companies announce they are considering “strategic alternatives,” it often involves a potential sale or restructuring.

The closing stores represent nearly 29% of Fred’s 557 stores and are located in 13 states, with Mississippi, Alabama, Georgia and Tennessee losing the most stores.

Sales at Fred’s stores open at least a year fell 4.9% in the first nine months of 2018, compared with a year earlier.

“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,” Fred’s CEO Joseph Anto said in the statement. “Most of these stores have near‐term lease expirations and limited remaining lease obligations.”

Shares of Fred’s were down nearly 5.8% at $1.97 in midday Thursday trading after the announcement.

The liquidation

Also Thursday, SB360 Capital Partners, which is managing the closing sales, announced the firm was launching “Total Inventory Blowout” clearance sales at an additional 360 Fred’s stores.

Discounts are 5% to 20% off the lowest ticketed price with some exclusions at both the closing locations and stores holding clearance sales, SB360 officials told USA TODAY.

“Fred’s stores bring the everyday necessities closer to home, and they do it at discount prices,” said Ziggy Schaffer, an executive vice president with SB360. “The store closing and total inventory blowout events will bring value on top of value.”

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.”

SB360 has managed liquidation sales for more than 50 years and is an affiliate of the Schottenstein family, which also owns DSW Inc. and American Eagle Outfitters. It recently handled the Charlotte Russe liquidation.

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.

Only 37 stores, or 7%, of stores are not included in either the clearance or liquidation sales.

What happened

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.”

Fred’s is part of a wave of recent retail closures. Based on figures from global marketing research firm Coresight Research, bankruptcy filings and company earnings reports, more than 6,500 stores are slated to close locations in 2019.

The brick-and-mortar downturn is expected to continue, according to a new report released this week from UBS Securities. Investment bank analysts said 75,000 more stores would need to be shuttered by 2026 if e-commerce “penetration rises from 16% currently to 25%.”

What’s next for Fred’s

In Fred’s statement Thursday, the company said PJ Solomon would do a “thorough evaluation” of the company’s plan and look for alternatives.

“There can be no assurance that the strategic review will result in any specific action, or any assurance as to its outcome or timing,” the statement said.

The number of employees affected was not immediately available.

“Decisions that impact our associates in this way are difficult, but the steps we are announcing are necessary,” Anto said. “We will make every effort to transition impacted associates to other stores where possible.”

There are no plans to close a majority or all Fred’s stores or to file for bankruptcy, The Wall Street Journal reported last week. 

Stores closings

Liquidation is getting underway at 159 Fred’s stores in 13 states with discounts ranging from 5% to 20% on most items with some exclusions. The stores are expected to close by the end of May.

Alabama

Arkansas

Georgia

Illinois

Kentucky

Louisiana

Missouri 

Mississippi

North Carolina

Oklahoma

South Carolina

Tennessee

Texas

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