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22 Feb, 2019

Payless Returns to Bankruptcy

Payless Returns to Bankruptcy

The 63-year old discount shoe retailer filed for Chapter 11 bankruptcy protection, less than two years after it emerged from its previous bankruptcy.

The bankruptcy filing Monday follows the start of going-out-of-business sales Sunday at its 2,500 US and Canadian stores. About 16,000 employees will lose their jobs. Store closings begin in March and should conclude by the end of May. The liquidation will not impact its franchised or Latin American stores, where it is the region’s largest specialty footwear retailer. Payless said in court documents that is looking to reorganize its Latin American and franchise businesses, which include looking for capital to support those businesses.

Payless had too much debt, too many stores, and too much corporate overhead when it emerged from the earlier bankruptcy, according to Stephen Marotta, who was named last month as the company’s chief restructuring officer to prepare for the bankruptcy.

Payless also ran into a series of problems that derailed its plans. A computer system issue hurt its back-to-school sales last year, and it carried too much inventory for the holiday season, which forced it to cut prices. Payless' North American business lost $63 million 2018.

The company says it owes $1.3 million in severance payments to employees that were laid off before the filing, but it is not sure whether it will be able to make those payments. Nor is it clear that it will be able to pay severance to the employees who lose their jobs going forward as the stores shut down. In the US bankruptcy cases, creditors are paid before employees that are owed severance.
Payless will keep open 420 stores in 20 other countries, primarily in Latin America, as well as its stores in US Virgin Islands, Guam and Saipan. But it’s core North American business will close.

The retailer, founded in 1956 in Topeka, Kansas, expects all stores to remain open until at least the end of March and the majority until May. That will keep many of its stores open through the Easter holiday, when it generates much of its sales.

Shoe retailer continued to face challenges, with competition ranging from Amazon to T. J. Maxx parent TJX Cos. to shoe retailer DSW. Payless had a loss of $63 million in 2018 and a loss of $4 million in 2017.

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