Payless seeks Chapter 11 protection, will close 400 stores

Discount footwear chain cites online, other challenges

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.

Payless, like other traditional store-based retailers, has had its share of tough online competitors in 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,” he said in a statement.

In addition, Payless said it has 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.

Founded in 1956, the Topeka company had been in talks for as many as 1,000 store closings before the bankruptcy filing, Bloomberg News reported in February.

“This is a difficult but necessary decision driven by the continued challenges of the retail environment, which will only intensify.” Payless CEO Paul Jones