Payless ShoeSource, which has been largely quiet since going private in 2012, is reportedly discussing a restructuring of its $600 million debt load with lenders while seeking to close about 1,000 stores.
If unable to reach a deal, the budget shoe chain may pursue a bankruptcy reorganization, according to a report from Bloomberg. Sources indicated financial advisor Guggenheim Partners and the law firm Kirkland & Ellis have been hired to assist in the process. The company’s biggest chunk of debt is a $520 million loan due in 2021, according to data compiled by Bloomberg.
Reports had arrived in late January that Payless was months behind on paying some vendors. Also in late January, the Kansas City Business Journal reported that Payless was laying off 165 people in a cost-cutting move.
In early 2016, Moody’s cut the debt ratings in Payless due to a weakening financial performance and mounting debt levels. Compared to other retailers, the rating agency said Payless has been hurt by foreign currency headwinds. According to Payless’ website, of the company’s 4,400 stores, 3,600 are in North America. The next biggest region is Latin America and the Caribbean region, with 350 locations. It also has locations in Morocco, Ghana, Saudi Arabia, Egypt, India, Thailand, Indonesia, Philippines and South Korea.
The rating agency also said Payless was continuing to be impacted by declining mall trends and economic challenges faced by its lower-income consumer.
“Payless benefits from the value-orientation of the brand and its under-$30 price point which Moody’s believes helped minimize some of the impact from the most recent downturn. However, Payless’ core customer remains under economic pressure, which constrains meaningful growth.”
Jones, who took over as CEO in 2012, has also said that the introduction of the internet provided new and attractive alternatives to price-sensitive shoe shoppers who used to shop at Payless. On February 8, Payless announced the appointment of Ellen Junger, former chief marketing officer at Hallmark Cards Inc., as its chief customer and marketing officer.
A report last year in Footwear News indicated that the chain planned to close between 350 and 500 stores within the next three years while continuing to invest in its larger format, Payless Superstore, which will include more staple, everyday use shoe options and a larger store layout than before.
Payless was bought by private equity firms Golden Gate Capital and Blum Capital Partners in 2012 as part of a split of Collective Brands Inc.
Image courtesy Avalon Mall
