The Impact of LL Flooring’s Bankruptcy
Home improvement retailer LL Flooring is only the latest vendor to announce it’s shuttering a significant portion of its stores amid economic uncertainty. In a press release issued August 11, 2024, the company — formerly known as Lumber Liquidators — said it’s closing 94 retail locations in more than 30 states as part of a Chapter 11 bankruptcy reorganization. The closings will impact LL Flooring outlets in 31 states, with California and Texas each losing 11 outlets, while seven stores will close in Illinois.
In its bankruptcy filing, LL Flooring estimated its assets fall somewhere between $500 million to $1 billion, while its liabilities range from $100 million to $500 million. Despite this uneven equation, the company has secured approximately $130 million in debtor-in-possession (DIP) financing from a group of banks including Bank of America. If the filing is approved, the DIP funding (along with existing LL Flooring funds), will enable the LL Flooring to keep its other operations — which includes 300 additional stores — afloat for the time being, according to company executives.
The Richmond, Virginia-based company looks like another casualty of two years of economic instability. A combination of stubborn inflation, high interest rates, and a sluggish post-pandemic recovery hit retailers around the globe especially hard. In the U.S. alone, more than 3,000 brick-and-mortar storefronts have shut down since the start of 2024.
An Uncertain U.S Housing Market
But LL Flooring’s bankruptcy stands out for another reason: it’s reflective of an uncertain U.S. housing market (as was the decision earlier this year by Kelly-Moore Paints to shut down its entire, 78-year-old operation. Although Kelly-Moore’s massive legal problems didn’t help.) Initially, COVID-19 triggered a surge in sales at home renovation stores as stay-at-home consumers with stimulus checks in hand opted to refurbish their living spaces. Initially, businesses such as Kelly-Moore, LL Flooring, Home Depot, Lowes, and others benefited from this swell of remodeling activity.
Fast forward to 2022 and 2023, when — to tame inflation — the Federal Reserve began raising interest rates. As of October 2022, the 30-year interest rate hit 7 percent. By late 2023, rates lingered around 8 percent, which stymied housing sales. As of 2024, the cost of a typical 30-year fixed mortgage hovers around the high-6 and 7 percent range. Meanwhile, housing prices spiked. Home prices have surged 47 percent since 2020.
This one-two combination — historically high interest rates and escalating housing costs — has discouraged both prospective home buyers and sellers from making a move until they see which direction the housing market is headed. Until then, the market appears to be in a holding pattern, which has driven up the collective value of U.S. homes nationwide to nearly $50 trillion, according to RedFin. Stalled properties translate into dwindling home improvement sales, which didn’t help the situations LL Flooring and Kelly-Moore found themselves negotiating.
What This Means for Consumers
Although it’s too early to tell, reduced competition does not typically beckon lower prices. It’s feasible that contractors, carpenters, and consumers may soon be paying higher prices at Home Depot, Lowes, Ace Hardware, True Value, Menards, and the other home improvement retailers left standing. Some of the larger retailers — Home Depot and Lowes, for instance, both of which operate more than 2,000 stores in the U.S. — might find themselves monopolizing the home improvement market, which could ultimately cost do-it-yourselfers even more money.
Wondering if real estate has a place in your investment portfolio? Contact Avestix.
