Payless ShoeSource has become the most recent retailer to file for bankruptcy in the face of hard times.
The discount shoe store sought Chapter 11 bankruptcy protection on Tuesday, saying it needed to shore up its balance sheet in order to position itself for long-term survival in an increasingly tough retail landscape.
“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify,” said Payless CEO W. Paul Jones in a statement.
Payless plans to immediately close 400 stores in the U.S. and Puerto Rico and will also “aggressively manage” the rest of its real estate portfolio. That will mean closing additional stores and seeking to modify existing lease terms. The retailer currently has 4,400 stores in more than 30 countries.
Payless was founded in the 1950s as a no-frills destination for fashionable shoes at affordable prices. However, in recent years it has suffered from flat and declining sales and a staggering amount of debt, as shoppers shun malls and instead opt for online or other discount stores. In 2012, Payless was purchased by several private equity firms as part of a $2 billion buyout of its parent company.
The retailer said it has entered into an agreement to reduce its existing debt load by almost 50%. It has also negotiated up to $385 million of debtor-in-possession financing from existing lenders to help it keep the business running and successfully emerge from bankruptcy.
Payless listed estimated current liabilities from $1 billion to $10 billion, according to the bankruptcy filing. Meanwhile its assets range from $500 million to $1 billion.
While the retailer is private and does not have to disclose its financials, Payless noted that EBITDA (earnings before interest, tax, depreciation and amortization) was flat last year. Jones added that this was “despite unprecedented challenges and in contrast to many retailers.”
Revenues slid 4% to $2.3 billion in the twelve months ending in October 2016, according to Moody’s.
Payless said it is also pursuing bankruptcy so that it can invest in areas that it believes will deliver growth, like expanding in places such as Latin America, bolstering its online presence and shaking up its product offerings.
Other retailers to file for bankruptcy this year include HHGregg, Wet Seal, The Limited and RadioShack. A slew of companies, like Sears, Macy’s, Abercrombie & Fitch and GameStop, are closing hundreds of stores and shifting resources to their e-commerce operations. Ralph Lauren said on Tuesday it would close its flagship Fifth Avenue location in New York.
Payless is based in Topeka, Kansas and filed for bankruptcy in the United States Bankruptcy Court for the Eastern District of Missouri.
by Lauren Gensler
