Sycamore Partners’ Strategy Has Hurt Workers, Generated Poor Returns for Investors
December 15, 2022
Sycamore Partners recently formed its new buyout fund and will likely be fundraising again in early 2023. We have reached out to Sycamore Partners multiple times to discuss how they can improve conditions for the workers they employ and those in their supply chain.
Under Sycamore Partners’ ownership, multiple companies including Belk and Nine West have filed for bankruptcy.[1] Bankruptcies can mean devastating layoffs for workers. In addition, Sycamore Partners-owned companies have been fined for a number of health and safety, wage and hour, and environmental violations. While Sycamore Partners’ strategy has led to negative impacts for workers, it has also been ineffective at delivering outsized returns for investors in recent years.
In 2018, the Wall Street Journal noted, “With Sycamore’s strategy, it isn’t necessary to spruce up a purchased company. The firm often buys struggling retailers and sells off their most valuable pieces. It cuts costs at whatever remains, sometimes using the savings to extract dividends.”[2] The pieces that are not sold may end up in bankruptcy. Sycamore Partners owned Belk and Nine West when they filed for bankruptcy.[3] Aeropostale, another retailer, claimed that onerous terms from Sycamore Partners-owned apparel sourcing company MGF Sourcing helped push it into bankruptcy.[4] In the case of Nine West, this meant the closure of 70 stores and mass layoffs.[5]
Sycamore Partners-owned companies have been fined for a number of health and safety, wage and hour, and environmental violations. Since Sycamore purchased Staples in 2017, the retailer has faced penalties for eight alleged wage and hour and health and safety violations.[6] The largest settlement Sycamore Partners have faced was a private wage and hour lawsuit at Sycamore-owned Talbot’s stores.[7]
Labor Violations at Sycamore Partner Companies[8]
| Company | Offense Type | Year | Agency | Penalty or Settlement |
| Talbots | wage and hour violation | 2018 | private lawsuit-state | $2,950,000 |
| Staples, Inc. | wage and hour violation | 2019 | MA-AG | $165,000 |
| Lane Bryant, Inc. | wage and hour violation | 2022 | MA-AG | $50,821 |
| Hot Topic, Inc. | workplace safety or health violation | 2018 | OSHA | $38,803 |
| Belk, Inc. | workplace safety or health violation | 2019 | OSHA | $31,941 |
| Hot Topic, Inc. | workplace safety or health violation | 2016 | OSHA | $22,392 |
| Staples, Inc. | workplace safety or health violation | 2019 | OSHA | $16,102 |
| Staples, Inc. | environmental violation | 2022 | CA-SCAQMD | $15,000 |
| Staples, Inc. | workplace safety or health violation | 2021 | OSHA | $13,653 |
| Staples, Inc. | workplace safety or health violation | 2018 | OSHA | $10,163 |
| Staples, Inc. | workplace safety or health violation | 2019 | OSHA | $10,000 |
| Staples, Inc. | workplace safety or health violation | 2018 | OSHA | $6,270 |
| Essendant Co. | environmental violation | 2020 | CA-DPR | $6,216 |
| Hot Topic, Inc. | workplace safety or health violation | 2019 | OSHA | $5,600 |
| Hot Topic, Inc. | environmental violation | 2016 | CA-ARB | $5,600 |
| Staples, Inc. | workplace safety or health violation | 2019 | OSHA | $5,200 |
| Ann Taylor | workplace safety or health violation | 2021 | OSHA | $5,190 |
There are also labor concerns within Sycamore Partners’ companies’ supply chain. In July 2022, IndustriALL Global Union alleged that anti-union practices were taking place at PT Tainan Enterprises Indonesia, which is reported to supply brands including Ann Taylor.[9] In 2021, Thai garment workers that worked for Brilliant Alliance, the company that supplied Sycamore Partners-owned Lane Bryant and Torrid, were laid off without their legally mandated severance.[10]
Sycamore Partners has a duty to its investors and the workers its portfolio companies employ to address labor concerns at its companies and in its supply chain. Failure to address these concerns may increase costs and create material risks for portfolio companies. Talbots settled a wage and hour lawsuit for nearly $3 million in 2018, and the Thai severance dispute led to an over $8 million payout by Brilliant Alliance, costs that could have been avoided under more responsible stewardship.[11][12]
Sycamore’s strategy has also proven ineffective in generating outsized returns for investors.
Sycamore Partners’ first fund, a $1 billion pool raised in 2012, posted annualized returns of 27% after fees. While the first Sycamore fund (2011) excelled and saw above average returns, its second fund (2014) performed in the bottom quartile and its third fund (2017) has also performed poorly relative to peers.[13]
Sycamore Partners Fund Performance[14]
| Fund Name | Vintage | Size | TVPI | IRR | Benchmark | Quartile | Diff |
| Sycamore Partners III | 2017 | $4.75B | 1.17x | 12.39% | 23.98% | 4 (Bottom) | -11.59% |
| Sycamore Partners II | 2014 | $2.50B | 1.17x | 5.20% | 19.40% | 4 (Bottom) | -14.20% |
| Sycamore Partners I | 2011 | $1.00B | 1.97x | 27.01% | 14.20% | 1 (Top) | +12.81% |
The first fund was able to generate significant returns, but Sycamore Partners have shown that their strategy may not have long term resilience and may not scale well.
Executives at the company may be noticing this failure in their investments as well. In July of 2022, Peter Morrow, one of Sycamore Partners’ founding partners, left the firm.[15]
[1]https://www.retaildive.com/news/belk-files-for-bankruptcy-eyes-lightning-fast-exit/595618/, https://www.retaildive.com/news/nine-west-lenders-look-to-sue-sycamore-over-outright-fraud/539897/, https://www.reuters.com/article/us-aeropostale-bankruptcy/aeropostale-accuses-sycamore-partners-of-loan-to-own-scheme-idUSKCN1030TE
[2] https://www.wsj.com/articles/how-one-investor-made-a-fortune-picking-over-the-retail-apocalypse-1521643491
[3]https://www.retaildive.com/news/belk-files-for-bankruptcy-eyes-lightning-fast-exit/595618/, https://www.retaildive.com/news/nine-west-lenders-look-to-sue-sycamore-over-outright-fraud/539897/
[4]https://www.reuters.com/article/us-aeropostale-bankruptcy/aeropostale-accuses-sycamore-partners-of-loan-to-own-scheme-idUSKCN1030TE
[5]https://rebusinessonline.com/retailer-nine-west-files-for-bankruptcy-will-close-all-stores/
[6] Violations Tracker Good Jobs First https://violationtracker.goodjobsfirst.org/
[7]Lopez v. Talbots, Inc., Case No. RG15785672 (Superior Court of the State of California for the County of Alameda. Apr. 17, 2018) Judgement accessed via Superior Court of Alameda County Public Portal https://www.eportal.alameda.courts.ca.gov
[8] Violations Tracker Good Jobs First https://violationtracker.goodjobsfirst.org/
[9]Garment Company in Indonesia Reinstates . IndustriALL Union. (2022, November 1), https://www.industriall-union.org/garment-company-in-indonesia-reinstates-union-leader, Indonesia: Garment factory supplying brands. (2022, August 22). Business & Human Rights Resource Centre. https://www.business-humanrights.org/en/latest-news/indonesia-garment-factory-supplying-brands-incl-ann-taylor-gap-macys-accused-of-union-busting-ordered-to-reinstate-dismissed-leaders-incl-co-responses/
[10]https://www.usnews.com/news/business/articles/2022-05-26/thai-garment-workers-win-8-3m-in-back-pay-after-layoffs
[11]Lopez v. Talbots, Inc., Case No. RG15785672 (Superior Court of the State of California for the County of Alameda. Apr. 17, 2018) Judgement accessed via Superior Court of Alameda County Public Portal https://www.eportal.alameda.courts.ca.gov
[12]https://www.usnews.com/news/business/articles/2022-05-26/thai-garment-workers-win-8-3m-in-back-pay-after-layoffs
[13] Pitchbook (2022, November 29) Sycamore Partners Profile. https://www.pitchbook.com
[14] Pitchbook (2022, November 29) Sycamore Partners Profile. https://www.pitchbook.com
[15]https://www.buyoutsinsider.com/sycamore-partners-loses-one-of-its-founding-partners-as-it-eyes-next-flagship/#:~:text=Sycamore%20Partners%20loses%20one%20of%20its%20founding%20partners%20as%20it%20eyes%20next%20flagship,-Chris%20Witkowsky&text=Sycamore%20Partners%2C%20a%20retail%20specialist,this%20year%2C%20sources%20told%20Buyouts.
