The retail landscape has been rocked once again as Big Lots, a popular discount retailer with 1,389 stores nationwide, filed for Chapter 11 bankruptcy this September. A major component of its restructuring plan includes the closure of 300 stores, while the remaining 1,089 locations will remain open under court supervision. This oversight often leads to renegotiated lease agreements, with terms typically reduced by 30% to 50%. While this may give the retailer some breathing room, the ripple effects are sure to impact investors in retail spaces. 

The Big Box Domino Effect 

Big Lots is far from the first big box retailer to face bankruptcy. Other well-known names, such as Party City, Circuit City, Stein Mart, Bed Bath & Beyond, Tuesday Morning, and Sports Authority, have also succumbed to financial struggles in recent years. This growing list highlights the volatility within the retail sector—especially among larger, single-use tenants. 

The closures of big-box stores often leave enormous spaces vacant, burdening landlords with the task of finding replacement tenants or repurposing properties. These processes can be costly, time-consuming, and uncertain, eroding the return on investment for properties that were once thriving. For investors reliant on these tenants, the risks are starkly evident. 

The “One Trick Pony” Risk in Retail 

Big Lots’ bankruptcy shines a spotlight on a critical issue for real estate investors—what we call “One Trick Pony” risk. This occurs when shopping center deals rely too heavily on a single anchor tenant, making the entire investment vulnerable to tenant turnover or closure. This is particularly problematic in the retail sector, where changes in consumer habits, e-commerce growth, and economic downturns have created a tougher environment for big-box stores. 

While we have seen some investment firms promote shopping center deals involving such tenants, our approach at REEP Equity emphasizes caution. A solid investment strategy is built on diversification, which helps investors limit their exposure to specific risks like tenant instability. Relying on one source of income in retail investments is a gamble we believe prudent investors should avoid. 

The Challenge 

Often, plaintiffs or involved parties return to the negotiating table to ask for further concessions. This can gradually erode the financial stability of deals reliant on these tenants, compounding the already-present challenges posed by vacancies or renegotiated lease terms. 

For landlords, the unpredictability of these concessions adds another layer of complexity to managing retail properties. It underscores why diversification is not just an option but a necessity when building a stable portfolio. 

Why Multifamily Investments Outperform Retail 

At REEP Equity, we’ve long championed multifamily investments as a more stable, reliable alternative to the volatile retail sector. Multifamily properties offer consistent demand, as the need for housing doesn’t wane as consumer habits do for retail. Our white paper, titled Why Multifamily Investments Outperform Certificates of Deposits and Retail Investments, dives deeper into why multifamily is a smarter choice for many investors. We encourage our readers to review this resource to better understand how thoughtful diversification can protect and grow your portfolio. 

A Shift in Investment Mindsets 

The wave of big-box bankruptcies such as Big Lots reinforces the importance of forward-thinking investment strategies. Diversification, keeping a critical eye on tenant risks, and opting for more stable asset classes like multifamily real estate are all ways to safeguard your investments in an unpredictable market. 

Investors can build portfolios that endure market changes by learning from these trends and adapting strategies to avoid the “One Trick Pony” pitfall. After all, a well-rounded approach is not just prudent—it’s essential. 

We invite you to Join our Investor Network to learn more about creating a resilient investment strategy. Together, we can prepare for a more secure and prosperous future.