When Big Lots, Inc. filed for Chapter 11 bankruptcy protection in September 2024, the legal framework governing distressed retail assets created an opportunity for strategic competitors. Ollie’s Bargain Outlet Holdings, Inc. capitalized on this process, ultimately securing 63 former Big Lots store leases through multiple bankruptcy auctions—a textbook example of how Section 365 of the Bankruptcy Code facilitates asset transfers in retail reorganizations.
The Bankruptcy Framework
Big Lots cited inflation and high interest rates as primary factors contributing to their insolvency, but the legal mechanism for unwinding their retail footprint followed established bankruptcy protocols. The debtor-in-possession conducted asset sales through court-supervised auctions, allowing qualified bidders to assume existing commercial leases under terms more favorable than typical market conditions.
Robert Helm, CFO of Ollie’s, disclosed during the company’s earnings call that the acquired locations feature long-term leases with below-market rents that permit outsized profitability. This pricing advantage stems from the bankruptcy estate’s priority of maximizing recovery for creditors, even if that means transferring leases at rates below current market value.
Multi-Wave Auction Structure
The asset disposition occurred in three distinct phases. The initial auction of 143 stores yielded seven locations for Ollie’s in October 2024. A subsequent auction involving 176 stores resulted in eight additional lease assumptions. The final transaction occurred in February 2025, when Ollie’s acquired 40 leases from Gordon Brothers, the liquidation firm handling Big Lots’ remaining assets.
This staged approach reflects standard practice in large retail bankruptcies, where debtors test market demand and adjust reserve prices between auction rounds. Bidders like Ollie’s benefit from observing competitor behavior and refining their acquisition criteria as the process unfolds.
Dark Rent and Lease Assumption Costs
An often-overlooked aspect of bankruptcy lease acquisitions involves carrying costs during the transition period. Helm acknowledged that Ollie’s expects to incur approximately $5 million in “dark rent”—lease payments on vacant properties during the four-month period before operational conversion. This exceeds their typical four to five weeks between lease execution and store opening.
From a legal standpoint, lease assumption under bankruptcy law transfers both benefits and burdens. The assuming party accepts all lease obligations, including rent payments, from the assumption date forward. While this creates short-term carrying costs, the below-market lease rates justify the investment according to Ollie’s financial analysis.
Selection Criteria and Due Diligence
Not all available Big Lots locations met Ollie’s acquisition standards. CFO Helm noted that many properties had short remaining lease terms or contained restrictions preventing assumption. This selectivity demonstrates prudent due diligence—a critical component in distressed asset acquisitions where caveat emptor principles apply with particular force.
The company evaluated each property against specific criteria: remaining lease term, rental rate relative to market comparables, demographic alignment with their customer base, and absence of restrictive covenants that could impair operations. This methodical approach contrasts sharply with opportunistic bulk acquisitions that often saddle buyers with problematic locations.
Broader Market Context
Big Lots carried $573 million in long-term debt and had posted 16 consecutive quarters of comparable sales declines before filing, illustrating the deterioration that precedes most retail bankruptcies. The company’s inability to service its debt obligations triggered the Chapter 11 filing, which then activated the statutory mechanisms allowing lease transfers to better-capitalized operators.
This pattern has repeated across the retail sector in recent years. Party City, Rite Aid, Joann Fabrics, and 99 Cents Only—the latter also providing acquisition opportunities for Ollie’s—have all utilized bankruptcy proceedings to shed underperforming locations and transfer viable assets to competitors.
Legal Implications for Landlords
Commercial landlords face particular challenges in retail bankruptcies. While bankruptcy law provides certain protections for property owners, including administrative expense priority for post-petition rent, landlords often must accept below-market lease assumptions to avoid property vacancy. The alternative—lease rejection and return of dark space to the market—typically yields worse economic outcomes in distressed retail environments.
In this case, landlords benefited from continuity of tenancy, albeit with a different operator. Ollie’s assumption of 63 leases preserved rental income streams that might otherwise have ceased, though at rates likely below what landlords could command in a healthy leasing market.
Strategic Acceleration
Ollie’s plans to open approximately 75 new stores in 2025, representing acceleration beyond their historical 10% annual growth rate. CEO Eric van der Valk stated the Big Lots acquisition allows the company to exceed normal expansion targets while maintaining disciplined site selection.
From a corporate strategy perspective, this demonstrates how bankruptcy creates asymmetric opportunities. Well-capitalized competitors can expand during industry distress at costs substantially below greenfield development, while struggling operators liquidate assets at discounted valuations.
FAQs
What legal mechanism allowed Ollie’s to acquire Big Lots leases? Section 365 of the U.S. Bankruptcy Code permits debtors to assume and assign executory contracts, including commercial leases, subject to court approval and cure of any defaults.
Were landlords required to accept the lease transfers? Generally yes, provided the assuming party demonstrates adequate assurance of future performance and cures any existing defaults. Bankruptcy law limits landlord objections to lease assumptions.
What happens to remaining Big Lots locations? Leases not assumed by qualified bidders are rejected by the bankruptcy estate, returning properties to landlords who must then seek new tenants in the open market.
How does dark rent factor into acquisition economics? Dark rent represents sunk costs during property conversion. Acquirers must evaluate whether below-market lease rates justify carrying vacant properties for several months before generating revenue.
Can other retailers employ this strategy? Yes. Any financially stable retailer can participate in bankruptcy auctions, though success requires capital resources, operational capacity to convert locations, and strategic fit with available properties.