Payless ShoeSource on Tuesday filed for Chapter 11 bankruptcy, announced plans to immediately close nearly 400 underperforming locations in the U.S. and Puerto Rico and said it will “work to aggressively manage the remaining real estate lease portfolio either by modifying terms, or evaluating closures of additional locations,” according to a press release.
The company's North American entities and two foreign Hong Kong-based entities involved in logistics and supply chain operations are included in the restructuring plans. Payless said it will continue to operate its business in the ordinary course in terms of its customers, vendors, partners and employees.
Payless has entered into a Plan Support Agreement with parties who hold or control approximately two-thirds of its first lien and second lien term debt to reduce its debt load by almost 50% and materially lower its annual cash interest costs to access additional capital and provide a speedy path out of bankruptcy.
In his statement Tuesday, 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.
"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, and there were reports then that it might file for bankruptcy protection if it couldn’t come to an agreement with its lenders. That day has come, signaling the end for at least 400 stores right off the bat.
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 debt-pile on from private equity owners. The retailer 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.