Payless Inc. is preparing to file for Chapter 11 bankruptcy protection as early as next week, unnamed sources told Bloomberg.
As it restructures, the discount shoe retailer is considering the closure of 400 to 500 stores, a number in line with plans announced last year as part of a new strategy emphasizing big box stores over mall stores.
Payless, which has over 4,000 stores in 30 countries, was initially planning to shutter some 1,000 stores but the number of closures isn’t set in stone, according to Bloomberg. A Payless spokesperson declined to comment to Retail Dive on the report.
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. Even Macy’s in recent days announced that it’s trying out a self-service model in some stores. The approach is a feature of one of the most successful segments of retail — off-price stores run by the likes of T.J. Maxx parent TJX Cos.
Payless 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.
Bankrupt apparel retailers The Limited, Wet Seal, American Apparel and Gordmans have also stumbled under the debt loads heaped upon them by their respective private equity owners, and J. Crew is wobbling. “These poor apparel chains end up one way or another in the hands of private equity — and in the end, there’s no company, no stores, no employees, and the private equity made money,” Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive earlier this year. “Congratulations. That’s how it works.”
In January, Limited Stores owner Sun Capital told investors that despite the apparel chain's closure, it made back its original $50 million 1.8 times over due to prior distributions and dividends, and will write down the remaining equity value of Limited Stores to zero.
Payless’s outstanding $520 million senior debt is quoted around 52 cents on the dollar, and its $145 million junior loan is quoted at some 16 cents on the dollar, sources told Reuters in January. Portions of those loans went to pay out a dividend to Blum Capital and Golden Gate, according to that report. Moody’s Investors Service in February cut the retailer’s rating and outlook, based on its declining performance and debt pressure.