The encyclopedia · Finance & Accounting · Financial decision · 2019
Payless emerged from bankruptcy with 3,500 stores — 18 months later it closed all of them
The shoe chain's first restructuring cut debt but not its exposure to mall traffic and online rivals; the second filing gave up on U.S. stores entirely.
Payless ShoeSource · 2019-02-18
What happened
Payless ShoeSource, once the largest footwear retailer in the U.S. by store count, filed its first Chapter 11 bankruptcy in April 2017, eliminating about 700 stores and roughly $435 million in debt. It emerged from that restructuring four months later with around 3,500 stores still open, treating the debt reduction as sufficient to stabilize the business.
The underlying pressures that had caused the first bankruptcy — declining mall foot traffic and competition from online and off-price footwear retailers — continued unchanged after the restructuring. Sales kept falling at the reduced store base.
Payless filed for a second Chapter 11 bankruptcy on February 18, 2019, less than two years after exiting the first one. This time the company did not attempt another store-count reduction: it announced the closure of all roughly 2,100 remaining U.S. and Puerto Rico stores, liquidating the entire domestic retail operation and eliminating about 16,000 jobs, while its franchised and Latin American stores continued separately.
Why it happened
- The first bankruptcy cut debt but left the store footprint exposed to the same declining mall traffic and online competition that had caused the trouble in the first place.
- Emerging with 3,500 stores assumed the business could still support a large physical footprint, when the market pressures behind the original filing hadn't gone away.
- Eighteen months between exiting the first bankruptcy and filing the second shows how little time the restructuring bought before the same problems resurfaced.
- By the second filing, the company judged partial store closures insufficient and chose full domestic liquidation instead, a much larger and more final decision than the first round.
The lesson
Restructuring debt without addressing why a retailer's stores stopped drawing customers just delays the same collapse — the second filing usually comes for everything the first one spared.
Aftermath
Payless closed all its U.S. and Puerto Rico stores by the end of May 2019, ending its run as a physical retail chain in its home market. Franchised international locations and a later-revived e-commerce and licensing business continued operating under new ownership, without the store network that had once made Payless one of the country's largest footwear retailers.
Sources
- Payless plans to close during its second bankruptcy, costing 16,000 workers their jobs — CNN Business
- Payless ShoeSource files for bankruptcy as it closes its 2,500 US stores — CNBC
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