Why Payless ShoeSource Could Be on Track for Another Bankruptcy

Payless ShoeSource is standing on shaky ground.

Less than two years after the company emerged from bankruptcy with a new leadership team and a leaner fleet of stores, it is again preparing to file for Chapter 11 protection, according to reports Friday from Bloomberg and CNBC citing anonymous sources with knowledge of the proceedings.

According to the sources, the retailer is exploring several options to avoid bankruptcy, including selling portions of its real estate, obtaining a loan and selling the company outright. A 2012 leveraged buyout by private equity firms Golden Gate Capital and Blum Capital Partners saddled it with $840 million in liabilities at the time of its last bankruptcy, in April 2017. While it managed to cut that debt in half during the restructuring, it has still faced headwinds with stiff online competition and the decline of American malls, many of which have lost anchor tenants and seen foot traffic fall.

A representative from Payless declined to comment.

In 2017, the company closed nearly 400 stores as part of its efforts to emerge from Chapter 11; today, it has 2,700 in North America, plus an additional 900 abroad. It also has a workforce of 18,000 globally. If the company doesn’t manage to find a buyer or lender in its time frame, it could be forced to liquidate most or all of its North American stores.

It would hardly be the first to do so in many shopping centers: Sears has already announced 80 new Sears and Kmart store closures scheduled for late March 2019, adding to the more than 180 closures announced last year. Gymboree, another mall staple, filed for bankruptcy last month and said it would liquidate around 800 stores; it also successfully emerged from bankruptcy in 2017.

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