Opinion: FDRA’s Matt Priest on Why Payless’ Chapter 11 Lifeline Is Good for Our Industry

FDRA Matt Priest
Matt Priest.
REX Shutterstock.

Times are tough for retailers. U.S. brick-and-mortar stores face growing competition, shrinking wallets and significant challenges with the tremendous rise of online shopping.

All of these trends lead to the headlines we see each week, as Main Street businesses that have been key job creators in our communities announce store closures. These trends undoubtedly contributed to the decision by Payless ShoeSource to file Chapter 11 bankruptcy in March.

There were also other factors that led to this filing, including the impact the 2015 West Coast ports slowdown had on deliveries and inventory levels — which hit retailers hard at a critical time of the year — as well as an unsustainable debt load.

Taken together, Payless’ otherwise stable top- and bottom-line performance was not enough to withstand the weight of these pressures. We need a stable and successful Payless. And with the Chapter 11 filing, the company has taken steps to lay a strong foundation for the future.

Why does this matter? Payless is the largest pure play footwear retailer in the U.S., and it serves a consumer group that is often overlooked, but very large. Millions of families rely on the low-cost, quality footwear Payless ShoeSource offers.

Payless is their destination of choice for back-to-school and holidays — and has been for decades. A strong and stable Payless can continue to serve working American families in diverse markets all over the country. Urban, rural, and suburban footwear shoppers all rely on Payless to help meet their family’s shoe needs. We should all want that to continue.

paylessA Payless superstore. Courtesy of Payless

I know the decision to file was a difficult one for Payless management, who worked tirelessly to combat these headwinds — cutting costs, identifying stores for closure and working to drive efficiency. Despite these efforts, however, more needed to be done.

Payless vendors, many of which are proud FDRA members, experienced payment delays and were rightfully concerned for their own businesses, and about the uncertainty surrounding Payless.

Chapter 11 enables Payless to lay a strong foundation for the future. Because of the protection afforded under the U.S. Bankruptcy Code, Payless can pay its thousands of employees, go-forward vendors and landlords for goods and services provided after the filing itself, and even honor gift cards.

It is my hope that many of its concerned vendors can now, with some certainty, partner with Payless on its new, post-Chapter 11 growth initiatives.

Payless’ goal is to present a plan of reorganization to the court in the coming months and emerge with a stable balance sheet, enabling the company to make the right investments to drive performance and better serve their customers.

This includes accelerating its successful expansion into Latin America and other global markets and strengthening the company’s e-commerce capabilities in the U.S. and around the world, too.

Unfortunately, when Payless emerges from bankruptcy, it will have a smaller U.S. store presence. Yet even if it was not restructuring, like so many other retailers, Payless would have closed stores and reinvested those cost savings into further development of its e-commerce platform and capabilities.

Chapter 11 may have hastened that process, but it provides structure and a focus to the reorganization to help ensure success.

Business loves certainty. Even during difficult times, clarity helps businesses survive and ultimately thrive. As the Chapter 11 process runs its course, there will undoubtedly be difficult conversations with vendors about amounts owed by Payless before the filing. Some of our members are among those affected — and we never want to see that happen.

But at the end of the day, and recognizing the alternative, this lifeline for Payless gives us some of that much-needed clarity. And a strong and vibrant Payless is good for all of us in this industry we love.

Matt Priest is the president and CEO of the Footwear Distributors and Retailers of America (FDRA).