The home improvement retail industry is facing many of the same economic problems that other industries, such as furniture, home appliance, and consumer electronics retailers, as well as real estate sales, are suffering from.
In a word: higher interest rates, price inflation and declining sales.
The real estate market has wrestled with rising interest rates since the 30-year fixed-rate mortgage hit a record low of 2.65% in January 2021 before rising to nearly 8% in October 2023. The rate was around 7% on July 5.
Related: Distressed discount furniture chain plans Chapter 11 bankruptcy
Inflation, which has affected many of these businesses, began spiking in mid 2021. The year-over-year change in the Consumer Price Index peaked at 9.1% in June 2022. The Federal Reserve started raising interest rates in March 2022 to fight inflation, and rates would rise 11 times through July 2023.
The real estate market has faced extreme inflation since the Covid pandemic, as house prices in the U.S. skyrocketed by 47% since 2020, according to a report from Case-Schiller National Home Price Index in May. Price increases that big in just four years can take a lot of potential homebuyers out of the market.
Higher interest rates for financing and higher prices from inflation can discourage consumers from purchasing products. But when economic factors, such as high interest rates and prices, prevent consumers from buying homes, tertiary businesses that benefit from real estate sales also suffer. You can include furniture, home appliances, consumer electronics and home improvement retailers among those businesses that are affected.
In addition to high interest rates and inflation, legal consequences can sometimes sink a company, as well. Iconic paint retailer Kelly-Moore Paints in January 2024 shut down all 157 of its retail locations and furloughed about 700 employees, in an out-of-court wind-down of all of its business operations after paying $600 million in asbestos litigation claims.
Related: Popular retailer closing all stores after Chapter 11 bankruptcy
The Irving, Texas-based company, founded in 1946, was in serious financial distress and faced millions of dollars more in payments for future asbestos claims that it determined it could not pay. The company, which operated in California, Nevada, Oklahoma and Texas, said in a statement that it would not file a Chapter 11 bankruptcy reorganization or Chapter 7 liquidation, since it did not have the capital to fund its continued operations.
Shutterstock
LL Flooring considers a Chapter 11 bankruptcy
A lawsuit, however, doesn't seem to be an issue for home improvement retailer LL Flooring (LL) , which is considering a Chapter 11 bankruptcy filing to reorganize its business, sources with knowledge of the matter have told Bloomberg.
More bankruptcy:
- Another popular beer brand files Chapter 11 bankruptcy
- Struggling clothing brand files Chapter 11 bankruptcy
- Retail brand with 29,000 locations files Chapter 11 bankruptcy
LL Flooring's shares on July 3 declined by about 22.5% at closing after the report of the home improvement chain planning a bankruptcy was revealed.
The company reportedly might consider filing in coming weeks as it has had difficulty accessing cash while its sales have declined. First-quarter sales fell 21.7% to $188.5 million, Bloomberg reported.
Discussions about a bankruptcy filing are not final yet, and the company's plans could change, sources said.
The Richmond, Va.-based flooring retailer was established by building contractor Tom Sullivan in 1994 as Lumber Liquidators. The company's corporate name was changed to LL Flooring Holdings on Jan. 1, 2022 after it was forced to pay $33 million a year earlier to settle securities fraud allegations.
LL Flooring, which in April 2024 was ranked as the top U.S. hardwood flooring retailer by U.S. News and World Report, operates over 400 locations in 47 states.
Related: Veteran fund manager sees world of pain coming for stocks
