News Feature | June 8, 2017

Payless Bankruptcy May Mean Even More Store Closures

Christine Kern

By Christine Kern, contributing writer

Payless Bankruptcy

Retail shoe chain has asked the Bankruptcy Court to sanction the closure of up to 408 more stores.

Discount shoe retailer Payless Inc. is pursuing Chapter 11 bankruptcy in an effort to reorganize and save its struggling operations, as Innovative Retail Technologies reported, with initial plans to close between 400 and 500 stores to reach a point of solvency. Now, the chain has asked the U.S. Bankruptcy Court in the Eastern District of Missouri to sanction the closure of up to 408 more stores that it says have failed to generate positive cash flow and “are therefore a drain on liquidity,” according to its recent bankruptcy filing. Together, the 800-some locations would represent about 20 percent of Payless' total locations worldwide.

Ongoing negotiations with landlords of those stores are a crucial element of the Chapter 11 restructuring, which means that not all stores will necessarily close, according to the filing. In a court filing, the company said that additional negotiations with landlords could possibly "result in consensual modifications and rent concessions" before a June 8 hearing on the matter. At the hearing, the judge in the U.S. Bankruptcy Court for the Eastern District of Missouri could authorize the additional closings.

The plan provides a powerful tool for negotiating with landlords that have refused to budge. "While many of those negotiations have been successful and significant savings have been realized, other negotiations have not been as successful," Payless said in the court filing.

In March, Payless stated that that it would “work to aggressively manage the remaining real estate lease portfolio either by modifying terms or evaluating closures of additional locations.” 

According to Payless CEO W. Paul Jones, "We are confident that this process will also enable us to leverage Payless's existing strengths to succeed," Jones said. "These strengths include our ability to produce significant free cash flow and, even last year, flat [earnings before interest, tax, depreciation and amortization] despite unprecedented challenges and in contrast to many retailers; our portfolio of strong proprietary brands, along with unique licensing agreements with premier brands and partners; our best-in-class design and sourcing capabilities that enable the company to offer customers high quality products at a significant discount to peers; our strong and growing Latin American business, and a lean and scalable franchise model for other markets."

Payless operates more than 4,000 stores across 30 countries, and employs almost 22,000 individuals.

Payless is not the only retailer struggling to stay afloat. American apparel, Aeropostale, Wet Seal, PacSun, and The Sport Authority have all filed for bankruptcy protection in the past two years, and Sears Holdings has also recently admitted that there is “substantial doubt” it will be able to stay in business.