Payless shoe chain, one of the largest retail stores in the country is the latest store to close shop and file for bankruptcy protection from its creditors. The store adds to the list of chain stores that have also closed down. The Topeka-based Payless ShoeSource, which was founded in 1956, on Tuesday filed for the US. chapter 11 bankruptcy protection at the federal Bankruptcy Court in St. Louis, prompting the immediate closure of its close to 400 stores that were considered to be underperforming.
Having been acquired by Blum Capital partners and Golden Gate Capital, which are privately owned equity companies, the company had employed roughly 22,000 people. The stores are mainly located in the USA and Puerto Rico, with close to 398 stores being located in the US and up to 100 located in Canada. According to the company’s website page, Payless Shoesource currently runs up to 4400 stores in at least 30 countries. W. Paul Jones, Payless CEO, attributes the tough retail atmosphere in recent times as one of the chief reasons for filing for bankruptcy. In a statement to the press, the CEO said, “This is a difficult, but necessary, a decision driven by the continued challenges of the retail environment, which will only intensify.”
The filing comes after conjectures that it would soon file for bankruptcy due to its increasing debt. and low sales. Moody’s Investors Services lowered its stance on the company as negative. The decision to filing bankruptcy comes amid steep competition with other discount stores and online stores like amazon. This comes with the rising shift of shoppers to online shopping platforms or buying products at discount stores such as T. J. Max for great deals.
Payless shoes are the about the 10th store to file this year, according to a recent research by AlixPartners. Moreover, according to Moody’s Investors Service, there has seen a steep rise in retailers falling into a similar predicament as that of Payless, this is the highest since 2009. The stores closed include “The Limited,” which shut its entire chain of 250 stores, yet by the year 2000, it had close to 400 stores up and running.
Payless ShoeSource filed for bankruptcy in a bid to streamline its debt load and also enhance its balance sheet. As part of its reorganization, the store intends to decrease its debts by up to 50 percent, to diminish the amounts payable as interests and other liabilities. The store’s liabilities currently stand at $10 billion and slightly lower than $1 billion in assets.
According to the company, a portion of its creditors have agreed to fund it with about $385 million to help keep the store in business as the store continues to restructure. The settlement is aimed at minimizing its yearly interest costs and allow accessibility to substantial supplementary capital. That incorporates $305 million of resource- based financing and $80 million new term credit. Payless assured that the new term credit will enable it to surface fully placed for future development and cost-effectiveness.
Altogether, Payless will receive liquid assets up to $120 million in incremental quantities from the debtor-in-possession in the course of the Chapter 11 process, the company said. According to the company, the cash received will be used to pay vendors and other suppliers, and to ensure that Payless retail store will leave the bankrupt status and will be up and running at optimal levels of service. This will also make sure that they are “well positioned for future growth and profitability post-restructuring.”
Payless CEO W. Paul Jones said “We are confident that this process will also enable us to leverage Payless’s existing strengths to succeed. These strengths include our ability to produce significant free cash flow and, even last year, flat [earnings before interest, taxes, depreciation and amortization] despite unprecedented challenges and in contrast to many retailers.”
Due to the store’s shut down, the company promised that it will properly manage the left over real estate lease portfolio through more closures of the remaining. Payless has chosen the law firm, Kirkland & Ellis, to be its legal advisor. Also, for investment banking, it has chosen Guggenheim Securities they will serve to be their chief financial advisors. While Alvarez & Marsal serve as their restructuring advisers.