Walking Company Looks Ahead

BOSTON — The Walking Company Holdings Inc. wants to run — not walk — out of bankruptcy.

After filing for Chapter 11 last week, CEO Andrew Feshbach said he is hoping the move will help convince the firm’s landlords to renegotiate the majority of the retailer’s store leases.

Feshbach told Footwear News that the company has “a rent problem we have not been able to solve.” He stressed that despite the bankruptcy filing “business will continue” and that it has not harmed The Walking Co.’s relationships with vendors, who are still shipping to the retailer.

“Our fight here is, unfortunately, strictly with the landlords,” said Feshbach, noting that the firm had expanded rapidly since the company was bought out of bankruptcy in 2004. It tripled the size of its store base over several years and until earlier this year, had 215 doors. The Santa Barbara, Calif.-based firm now anticipates closing as many as 90 unprofitable stores; five have already been shuttered.

In spite of that, The Walking Co.’s vendors were upbeat and hopeful that the firm will continue.

“This is going to be the best for the long term of The Walking Co. and the vendor community,” said Scott Morin, VP of sales at comfort brand Earth. “We will continue to support them. With a new business model, they’ll continue to be an important player.” Morin added that, like many vendors, he was not surprised about the filing, due to the firm’s rapid expansion during the height of the real estate boom, which resulted in expensive leases.

“We absolutely are committed to working with The Walking Co. and helping them out in any way we can,” said David Murphy, EVP of sales and marketing at Dansko. “We do have a lot of faith in their retail concept of offering quality comfort brands in a full-service environment. It’s a great concept and a very viable concept. We also have a lot of faith in their management team.”

Sanita President Gene Kunde added that he feels “strongly that [The Walking Co.] will not go away. They will regroup and be stronger.”

But at Birkenstock, Jay McGregor, VP of sales and marketing, said he expects the potential store closures to have a negative impact on some of the smaller brands in the footwear industry. Closing stores “would put a dent in a lot of companies’ bottom lines,” he said.

For its part, Birkenstock is only sold through The Walking Co.’s e-commerce site and not in its brick-and-mortar stores, but McGregor said that despite the bankruptcy, the brand still plans to work toward getting into the stores for spring.

Meanwhile, The Walking Co.’s receipt of $10 million in new capital and the fact that it has debtor-in-possession financing in place from Wells Fargo Retail Finance, which will also provide exit financing, gives Murphy added confidence that the retailer can come out of bankruptcy.

Murphy noted that Dansko will continue to supply The Walking Co. because the debtor-in-possession financing “guarantees operating capital and means no risk to vendors.”

Feshbach said his firm hopes to emerge from Chapter 11 in early 2010, or, as he said, “as fast as possible.”

Due to the bust of the real estate market last year, he explained, The Walking Co.’s store leases “reflected a rent structure of 2007, which is potentially the highest point in time in U.S. history for real estate prices.” As a result, he said, “from a rental and occupancy costs perspective, we’re just upside down on a lot of our stores.”

For example, the CEO said, in one of the malls where The Walking Co. operates a store, his firm pays $12,000 a month in rent, while retailers next to its unit are paying $3,000 to $4,000. “We’re at a competitive disadvantage,” he said.

Feshbach said the retailer had been unable to successfully renegotiate with its landlords since it first announced a restructuring in March, when it instituted salary cuts and terminated 500 employees and freed up about $15 million in cash. At that time, The Walking Co. said it lost $12 million in 2008.

But Feshbach is optimistic that The Walking Co. now will be able to resolve the rent problem because the firm should have more negotiating leverage with landlords. “It’s a new world right now, so anything can happen. The old rules of how things were done don’t apply to landlords anymore,” he said.

Faith Hope Consolo, chairman of the retail leasing and sales division at Prudential Douglas Elliman, said The Walking Co.’s ability to renegotiate leases will depend on the locations in question “and whether that location and that landlord has other people that want to be in the space.

“Landlords that really want to stay in control of their space will work with them, but that depends on a store-by-store basis and how long they’ve been in there,” Consolo said.

Feshbach asserted that in spite of the recent filing, The Walking Co.’s business is doing well, considering the economic environment. Sales in the third quarter were down, he noted, but fall sales so far have been “solid.”

“We recovered a good portion of the losses for the year. We were up in the fourth quarter on a comp basis,” he said. “We’ll probably wind up down 5 percent or 6 percent [in sales] for the whole year.”

The Walking Co. filed the voluntary bankruptcy protection petition last Monday in U.S. Bankruptcy Court for the Central District of California and listed its total assets as $110.1 million and total liabilities as $84.5 million.

Among the list of creditors holding the largest unsecured claims are Deckers Outdoor Corp., with a claim of $2.4 million; Simon Property Group, $1.5 million; General Growth Properties, $1.2 million; and Dansko Inc., $653,000. Other creditors include Ecco USA Inc., MBT-Masai USA Corp. and Aetrex Worldwide Inc.

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