Payless is working on a restructuring plan that could entail closing as many as 1,000 stores, Bloomberg reports. A Payless spokesperson declined to comment to Retail Dive on the report.
If the footwear retailer can’t come to new terms with its lenders, it may file for Chapter 11 bankruptcy protection, according to the report. The company has tapped law firm Kirkland & Ellis LLP to help explore its options in light of its $600 million debt load, Reuters first reported last month.
Payless last year had announced it would shutter some 500 stores as it planned a new brick-and-mortar strategy emphasizing its super-store format over its smaller mall-based stores.
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.
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 and J. Crew have also stumbled under the debt loads heaped upon them by their respective private equity owners. “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.