Payless ShoeSource Files for Bankruptcy Again | Half Price Lawyers

Payless ShoeSource Files for Bankruptcy Again

Less than two years after Payless emerged from its 2017 bankruptcy, the 63-year-old shoe retailer is filing for Chapter 11 bankruptcy again.

The going-out-of-business liquidation sales began at over 2,500 stores in the US and Canada. Sixteen thousand employees will lose their jobs. The process is set to conclude by the end of May.

Why Are The Filing Bankruptcy Again?

According to the official bankruptcy filing, Payless has about $470 million in outstanding debt. Back in 2017, Payless closed almost 700 stores and got rid of $435 million in debt; however, it was unable to recover and prove profitable in the following years to come.

Payless is following the course that many other retailers have taken in recent years. It’s what’s come to un-officially be known as “Chapter 22” – the situation that happens when a company files for Chapter 11 twice and eventually needs to shut down its business. Radioshack, Gymboree, and American Apparel all have filed for “Chapter 22.”

Following the Trend of Retail Bankruptcies

Critics were skeptical of Payless’s attempts to re-establish itself in the marketplace after the first Chapter 11 filing. Philp Emma, a senior analyst with DebtWire, is an expert on retail bankruptcies and stated that “The plans always look good on paper, but the reality is: if there are fundamental problems with the way a customer perceives a retailer, bankruptcy doesn’t solve that.”

The entire retail industry has been in a state of distress this past decade, in large part due to online shopping. As well, smaller companies like Payless have not fared as well as larger “box” stores such as Walmart or Target, who are – so far – battling through the storm. In the case of Payless, the store has faced competition from online shopping as well as larger competitors like T.J. Max and DSW.

Chief Restructuring Officers, Stephen Marotta, said in a statement: “The challenges facing retailers today are well documented, and unfortunately, Payless emerged from its prior reorganization [Chapter 11] ill-equipped to survive in today’s retail environment. The prior proceedings left the company with too much remaining debt, too large a store footprint, yet-to-be-realized systems, and corporate overhead structure consolidation.”

A Series of Missteps Leading to Bankruptcy

Payless claims its initial bankruptcy filing was due to “antiquated” inventory management and port strikes on the West Coast that delayed shipments before a crucial Easter holiday – which eventually led to a large allotment of off-season shoes that it couldn’t sell.

Recently, Payless ran into another problem when its computer system had issues during the back-to-school sales last year.

As of now, the company owes $1.3 million in severance payments to employees that were laid off before the filing. However, it is not sure whether or not it will be able to make those payments. The retailer is also unclear whether or not it will be able to offer severance pay to employees losing their jobs now, as the remainder of its stores close.

This Chapter 11 does not affect Payless’s stores in 20 other countries, including Latin America. It is only the North American stores that are closing.