Payless files for bankruptcy, shutters 400 stores
Discount footwear retailer Payless ShoeSource said it had filed for Chapter 11 protection on Tuesday with a plan to restructure debt and immediately close 400 underperforming stores in the United States and Puerto Rico.
Filing Chapter 11 will allow the discount footwear retailer to restructure its North American entities and its Hong Kong supply chain. 400 of Payless's retail stores in the United States and Puerto Rico will shutter as an effort to reduce debt.
"This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify," Payless Chief Executive Officer W. Paul Jones commented.
The Topeka, Kansas-based company listed assets in the range of $500 million to $1 billion and liabilities of $1 billion to $10 billion in a filing with U.S. Bankruptcy Court in St. Louis. Payless said it had reached an agreement with two-thirds of its top lenders to cut its debt by 50 percent.
Privately owned Payless Inc announced in mid-January that it had brought on Guggenheim Partner's team of debt-restructuring specialists to help combat the footwear retailer’s slow foot traffic in stores. As part of this restructuring, Payless was advised to shutter 1,000 of its retail locations. Sources said the discount retailer was also facing $665 million in debt.
Existing lenders have agreed to provide up to $385 million in debtor-in-possession financing, allowing Payless to remain in business and pay its bills throughout the Chapter 11 process.
The company said that an $80 million new term-loan financing will allow it to emerge from Chapter 11 "well positioned for future growth and profitability post-restructuring."
Payless currently has 4,400 stores across the globe, with 3,600 of those located in North America. The remaining stores are franchised, located in Africa, Asia, and the Middle East. Following the store closures, Payless said it will "aggressively manage" its remaining real estate lease portfolio, while looking to invest in growth areas and expand in international markets such as Latin America.
Payless ShoeSource is the latest victim to fall as consumers are swayed away from malls by online retailers, increasing their online spending and drastically decreasing their mall visits. In the last six months alone, Gordman’s, BCBG Max Azria, The Limited, and Wet Seal. Bebe has made the decision to shut its brick-and-mortar business in favor of redirecting focus on its online retailing.
Fitch Rating’s recent analysis on the retail environment has predicted that J.Crew, Sears, Claire’s, and Nine West will be the next to file.
With additional reporting from Reuters
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