Discount footwear chain Payless ShoeSource sought bankruptcy court protection Tuesday, announcing it will close 400 stores after facing bruising competition from online retailers and other setbacks.
The chain said that under a reorganization plan, it will shed debt, attract new capital, boost its e-commerce efforts and emerge stronger and more competitive.
Coming amid a wave of other retail sector bankruptcies and hundreds of store closings, Payless filed a Chapter 11 reorganization petition in U.S. Bankruptcy Court in Missouri that said the company has as much as $1 billion in assets and up to $10 billion in liabilities, along with more than 100,000 creditors.
An announcement by the privately-held company said Payless would "optimize its store footprint, with the immediate closure of nearly 400 underperforming locations in the U.S. and Puerto Rico." The company currently operates about 4,400 stores in 30 countries, including the U.S.
Payless, like other traditional store-based retailers, has had its share of tough online competitors in like Amazon and shoe supplier Zappos.com, which cut costs by having fewer employees and lower real estate costs. Payless CEO Paul Jones said competition is sure to get rougher.
"This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify," said Jones in a statement.
In addition, Payless said it has also faced some unique challenges over the past couple of years. They included several months of delays in receiving product deliveries during port tie ups on the West Coast, unspecified purchasing and inventory issues and not being able to invest enough in advertising and new technologies.
A strong U.S. dollar also cut into profit margins when it came to sales in Canada, Latin America and Australia. That's because customers bought shoes with their local currencies that Payless had to obtain with American dollars.
Payless said it plans to seek modified terms for the balance of the real estate lease portfolio or evaluate the possibility of additional closures.
The Topeka, Kans., company had been in talks for as many as 1,000 store closings before the bankruptcy filing, Bloomberg News reported in February.
In conjunction with the court-supervised restructuring, the company said it reduce its debt load by nearly 50% under an approved plan support agreement with parties who hold or control approximately two-thirds of Payless' first lien and second lien term debt. Demonstrating support from senior lenders, the plan will lower annual cash interest costs and provide access to additional capital, the company said.
Payless said initial filings in its the bankruptcy case will seek court authorization to pay pre-filing wages, salaries, and benefits, honor customer programs and pay company vendors and suppliers for all goods.
The company said it also has negotiated agreements with certain lenders who will give Payless access to up to $385 million of debtor-in-possession financing as Payless reorganizes its operations.
The company's reorganization plans also include expansion of omnichannel marketing, which enables customers to connect with Payless online as well as in brick and mortar locations. Additionally, Payless said it would evaluate potential international expansion in Latin America and elsewhere.
"This is a difficult but necessary decision driven by the continued challenges of the retail environment, which will only intensify," Payless CEO W. Paul Jones said in a formal statement issued with the bankruptcy announcement. "We will build a stronger Payless for our customers, vendors, and suppliers, associates, business partners and other stakeholders through this process."
Founded in Topeka in 1956, Payless offered what was a new retailing experience at the time, enabling customers to self-select footwear with affordable prices. The company says it now is the largest specialty family footwear retailer in the Western Hemisphere.
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Payless is owned by Golden Gate Capital and Blum Capital Partners, San Francisco-based private equity firms that took over the footwear chain in 2012 as part of the $2 billion breakup of Collective Brands.
Payless is the latest major retailer planning store closings this year. Similar announcements have come from Macy's, JC Penney, the parent company of Sears and Kmart, and others.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc