Payless ShoeSource has asked the U.S. Bankruptcy Court in the Eastern District of Missouri to sanction the closure of up to 408 more stores that it says have failed to generate positive cash flow and “are therefore a drain on liquidity,” according to a bankruptcy filling last week.
Negotiations with landlords of those stores are ongoing as part of the footwear retailer’s Chapter 11 restructuring, so not all stores will necessarily close, according to the filing.
Last month Payless filed for Chapter 11 bankruptcy and announced plans to immediately close roughly 400 underperforming locations in the U.S. and Puerto Rico and said then that it will “work to aggressively manage the remaining real estate lease portfolio either by modifying terms or evaluating closures of additional locations.”
In April, Payless CEO W. Paul Jones said the company’s Chapter 11 filing was a “difficult, but necessary, decision” prompted by a challenging retail environment, which he said will only intensify. Now it looks like the struggling footwear retailer may need to double the number of store closures it had initially set forth in its restructuring plans.
"We are confident that this process will also enable us to leverage Payless's existing strengths to succeed," Jones said. "These strengths include our ability to produce significant free cash flow and, even last year, flat [earnings before interest, tax, depreciation and amortization] despite unprecedented challenges and in contrast to many retailers; our portfolio of strong proprietary brands, along with unique licensing agreements with premier brands and partners; our best-in-class design and sourcing capabilities that enable the company to offer customers high quality products at a significant discount to peers; our strong and growing Latin American business, and a lean and scalable franchise model for other markets."
Earlier this year, the company was said to be working on a restructuring plan that could entail closing as many as 1,000 stores. There were reports at the time that the company might file for bankruptcy protection if it could not come to an agreement with its lenders. That day has come, signaling the end for as many as 800 of the 4,400 stores the company operated as of April.
Payless, founded in 1956 in Topeka, KS, disrupted shoe retail by introducing a no-frills, self-service approach that allowed for lower prices. The concept was a hit with customers, but it’s no longer a new one as the old-fashioned shoe salesperson who measures feet is now relegated to department stores and some specialty stores.
The shoe retailer is yet another victim of a leveraged buyout by private equity owners. Payless was bought in 2012 by private equity firms Blum Capital and Golden Gate after they and footwear company Wolverine took its parent company (Collective Brands) private. Wolverine now runs the Sperry Top-Sider, Stride Rite and Keds brands as a result of that deal.