Topeka, Kan. — Payless ShoeSource has filed for Chapter 11 bankruptcy and announced plans to immediately close nearly 400 underperforming stores.
The company, which bills itself as the largest specialty family footwear retailer in the Western Hemisphere, currently operates approximately 4,400 stores in more than 30 countries. The shoes and accessory retailer was founded in 1956 in Topeka, Kansas.
“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify,” says W. Paul Jones, the company’s CEO. “We will build a stronger Payless.”
Payless has entered into a Plan Support Agreement (PSA) with its lenders to reduce its debt load by almost 50 percent. The plan will also allow Payless to lower its annual cash interest costs, access additional capital and provide a path to emergence from Chapter 11 with a sustainable capital structure.
The agreement will also allow Payless to invest in areas that may provide further growth, including omnichannel expansion, product and inventory initiatives, and international expansion in Latin America and elsewhere. The company plans to optimize its store footprint through the immediate store closures, as well as managing its existing real estate lease portfolio. This may include modifying terms or considering closures of additional locations.
Payless has negotiated agreements with some of its existing lenders to provide the company up to $385 million of debtor-in-possession financing. This includes access to $305 million of asset-based financing and up to $80 million of new term loan financing.
“We are confident that this process will also enable us to leverage Payless’ existing strengths to succeed,” says Jones. “These strengths include our ability to produce significant free cash flow and, even last year, flat EBITDA despite unprecedented challenges and in contrast to many retailers.”
Many brick-and-mortar retailers are struggling with the continued shift in the playing field, driven mostly by the expansion of e-commerce. Payless is the 10th retailer to file for Chapter 11 bankruptcy so far this year, according to CNBC. Others include Gander Mountain, BCBG Max Azria, Wet Seal, Limited Stores, Gordmans Stores, HHGregg, Eastern Outfitters, RadioShack, General Wireless Operations and Michigan Sporting Goods Distributors.
Aeropostale also closed nearly 600 locations in 2017, while Sports Authority gave back 460 storefronts after its liquidation. Further store closures are being undertaken by Macy’s, JC Penney and Sears as the entire retail industry combats online retailers like Amazon while expanding their own omnichannel presence and shopping experience.
Payless has retained Kirkland & Ellis as its legal advisor; Guggenheim Securities as its investment banker and financial advisor; and Alvarez & Marsal as its restructuring advisor.
— Nellie Day