FN Exclusive: Payless on the Brink; Protests Erupt in China

It’s been a rough few months for struggling footwear retailer Payless ShoeSource and several of its domestic and international suppliers.

A source close to the situation told Footwear News today that about 200 unpaid Payless suppliers and factory workers protested against the company Thursday at a container freight station (CFS) in Xiamen, China. (A CFS is the location where manufactured goods are packed into containers at a port of origin to be unpacked later at a port of destination.)

According to the source, the group — which had been organizing the protests for several weeks — demanded that Payless make good on several hundred million dollars of unpaid debt. Demonstrators attempted to prevent the shipping of containers filled with shoes and other wares to the Topeka, Kansas-based firm, the source added.

This is the latest development in an ongoing situation involving Payless and several of its affiliates that have claimed nonpayment on the part of the retailer since last August. While multiple sources have said that the company will file for bankruptcy in the coming weeks, other sources close to the matter told FN today that the retailer has made no final decision in that regard.

Reports out of Taiwan this week suggested that the retailer owes at least one major Taiwanese shoe factory a past-due sum of $100 million. Meanwhile, one Taiwanese bank has an outstanding debt of $37 million from Payless-associated firms. Amid speculation that the cash-strapped firm will be unable to make good on its past-due bills, Zhenmao Zheng, vice chairman of China’s Financial Supervisory Commission, said dozens of Payless suppliers could go bankrupt and the bank would have to write off its losses.

Last week, speaking exclusively to FN, one China-based agent said he and multiple China-based factories, for which Payless is a top revenue source, have been cracking under the weight of Payless’ unpaid debt. The source alleged that when some of the factories contacted the retailer for payment, Payless had not been forthcoming about when payments will be made but warned that if they stop supplying the shoes, Payless would not do business with them in the future.

Out of desperation, the factories [have complied],” the source said, adding that he and others are hoping Payless can recover and resume payments.

In January, Payless announced that it had laid off 165 employees, or 2 percent of its total associate base. FN also exclusively revealed in September Payless’ plans to close between 350 and 500 of its 4,400 stores within the next three years. More recent reports have suggested that the number of store closures could be closer to 1,000.

Earlier this week, the retailer also confirmed that it has outsourced 80 of its Topeka-based information technology positions to a New Jersey-based company and over the next two months will eliminate 20 IT positions.

FN has reached out to Payless as well as company co-owner Golden Gate Capital for comment on the protest; both declined to comment. (Payless was bought by private equity firms Golden Gate Capital and Blum Capital Partners in 2012.)

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