FN Exclusive: Payless Suppliers in the U.S. & China Grow Anxious as Bankruptcy Looms

As the outlook for retail grows increasingly grim — sporting goods firms, fast-fashion producers and luxury brands are shuttering left and right — the future of the largest family footwear retailer in the U.S. hangs in the balance.

Just one month after Footwear News reported that several Payless ShoeSource vendor partners contacted the publication to state that Payless had fallen months behind on its bills, more agents and manufacturers have joined the fray, alleging unpaid bills and unethical business operations on the part of Payless.

This week, multiple new sources contacted FN alleging that their respective firms have not been paid since August for footwear and other products shipped to Payless, and that they have been forced to lay off several staff members as a result. In addition, the sources said that their attempts to get answers from the retailer have proven futile.

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 alleges that when some of the factories have asked for payment, Payless isn’t forthcoming about when payments will be made but warns that if they stop supplying the shoes, Payless will not continue to 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.

If Payless pursues the Chapter 11 route in order to address its reported $665 million in debt and is unable to successfully recover, there is a chance many of its unsecured creditors will go unpaid, as secured lenders will get first dibs on the firm’s assets. Sources told FN today that a bankruptcy filing from Payless is expected in April.

Last month, Bloomberg reported that Payless has been meeting with its lenders to discuss a restructuring plan that includes closing approximately 1,000 stores.

In January, the company announced 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. At the time, Payless CEO Paul Jones said the company’s resolve to shutter several hundred doors and layoff staffers was a proactive one.

Payless’ challenges come at a time when brick-and-mortar retailers are struggling with high real estate costs, intense pressure from e-commerce and consumer shifts toward experiential spending. Meanwhile, the rise of off-price retailers such as DSW Inc. and TJX Companies Inc. — owner of the TJ Maxx and Marshalls chains — has taken away significant market share from the firm.

Last year, mall staples Pacific Sunwear of California Inc. (PacSun) and Aéropostale Inc. filed for Chapter 11 protection in a bid to address their mounting debt. While both would emerge from the process and move forward with their operations, sporting goods stores The Sports AuthoritySport Chalet and City Sports were casualties of the bankruptcy process.

Today, fashion footwear, apparel and accessories maker BCBG Maz Azria Group LLC also filed Chapter 11.

In the case of Payless, if the retailer does pursue Chapter 11 or another restructuring plan that includes hundreds of store closures, there could be far-reaching implications for the footwear industry, not the least of which includes the possible demise of multiple China-based factories and smaller U.S.-based agents and suppliers for which the retailer is a top revenue source.

FN reached out to Payless for a response regarding agent allegations as well as an update on its restructuring plans; the retailer declined to comment.

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