Get Ready, Payless Is Back — Here’s What That Means

Don’t call it a comeback.

Roughly a year after Payless ShoeSource filed its second bankruptcy and announced it would shutter its North America business, the “everyday low price” family footwear retailer is emerging from Chapter 11 with new management and plans a U.S. rebound in “the near future.”

Payless said today that it has appointed Jared Margolis, who previously served as president of CAA-GBG, a joint venture between Global Brands Group and Creative Artists Agency, as its CEO.

Margolis, who said he’s set to implement a “new comprehensive strategic plan,” is also hoping to leverage Payless’ existing infrastructure — including product design and development, distribution, marketing and relationships with footwear manufacturers — to “fast-track” the company’s return to the U.S., which he views as its “biggest growth opportunity.”

“I am pleased to have the opportunity to lead this iconic retail brand into a new strategic phase with a strengthened balance sheet and clean financial outlook,” Margolis said in a statement.

The Payless Latin America division, which the company opted to keep in operations after its 2019 bankruptcy, is its largest current business unit and will now be led by CEO Justo Fuentes, the company also announced today. Fuentes previously served as president of BATA Latin America.

“In the past year, we have implemented many new strategies to increase our market share and in-store footprint in the region, and in 2020 we are going to build upon this even further,” Fuentes said. “This plan will include a strong digital component to allow an omnichannel approach to the Latin market, as well as several product strategies that will allow Latin consumers to continue seeing Payless as their primary source of high-quality, value-priced family footwear.”

Despite its bankruptcy last year, Payless had continued to operate its roughly 400 stores across Latin America, the U.S. Virgin Islands, Guam and Saipan, and it maintained its 370 international franchisee locations across the Middle East, India, Indonesia, Indochina, the Philippines and Africa. Today, Payless and its franchisees own and operate roughly 710 physical stores in over 30 countries within those regions.

The company said its current international footprint sold around 25 million pairs of shoes over the past 12 months and that its future plans also include expanding internationally — an effort that will be aided by its new omnichannel distribution strategy.

Also key to its revamp, Payless said, are its plans to collaborate with “high-profile individuals” and brands for exclusive product offerings at a “compelling price-point.” The company will also test new technologies to streamline and optimize its customer experience across geographies.

Payless first filed bankruptcy in April 2017 when it was laden with nearly $840 million in liabilities, much of which stemmed from a 2012 leveraged buyout by private equity firms Blum Capital and Golden Gate Capital. Payless emerged from that Chapter 11 filing four months later having shed about $435 million in funded debt and ditching hundreds of stores. Payless had 4,400 stores at the start of its 2017 Chapter 11 process; it exited bankruptcy with close to 3,500.

At the time, Payless’ emergence established the company in a rare class among its peers. Many struggling retailers, including The Sports Authority and City Sports, that had taken the Chapter 11 route resorted to liquidation.

Still, only a year and a half later, in 2019, Payless found itself back on the bankruptcy court docket with chief restructuring officer Stephen Marotta indicating the company had emerged from the 2017 reorganization “ill-equipped to survive in today’s retail environment.”

Now, as Payless charts its path for a potential rebound, it seems to be taking a similar route to that of fellow bankrupt retailer Toys ‘R’ Us, which filed Chapter 11 in 2018 and liquidated.

Toys ‘R’ Us in November resurfaced with the opening of two stores, one at Simon Property Group’s Galleria mall in Houston and another at Westfield Garden State Plaza in Paramus, N.J. It has also forged an e-commerce partnership with Target, reviving its product assortment on ToysRUs.com, with digital and fulfillment services supported by Target.

Payless and Toys ‘R’ Us had in common hefty private-equity debt loads and an abundance of stores at a time when much of retail was downsizing. Today, the two new Toys “R” Us outposts are smaller-format spaces with experiential offerings, a direction often recommended by retail experts.

Under its new structure, Payless is owned by a group of private equity funds.

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