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Payless files for bankruptcy, to close all 2,500 stores across North America

A longtime mall mainstay will soon disappear Payless ShoeSource begins to shut down its entire North American operation.

The footwear retailer announced that the company and its North American subsidiaries filed for Chapter 11 bankruptcy protection, with plans to close its approximately 2,500 store locations in North America and exit its e-commerce operations. (In Canada, Payless filed under the Companies' Creditors Arrangement Act.) Store closings will begin at the end of March, with many locations expected to remain open through the end of May, as Payless conducts liquidation sales in the U.S. and Canada. The retailer has also wound down its e-commerce operations.

Payless’ retail operations outside of North America are separate legal entities and are not included in the U.S. or Canadian filings. Payless’ 420 stores across 20 countries in Latin America, the U.S. Virgin Islands, Guam and Saipan, along with its 370 international franchisee stores in 16 countries across the Middle East, India, Indonesia, Indochina, Philippines and Africa, will continue operating business as usual in every respect.

"We have worked diligently with our suppliers and other partners to best position Payless for the future amidst significant structural, operational, and market challenges,” said Stephen Marotta, who was appointed in January 2019 to serve as chief restructuring officer of Payless. “Despite these efforts, we now must wind down our North American retail operations under Chapter 11 and the CCAA.”

Payless filed for Chapter 11 bankruptcy protection in April 2017. It emerged four months later, in August, after reducing its debt by some $435 million and closing about 400 stores. (The chain’s debt stemmed largely from the roughly $2 billion sale of its former parent, Collective Brands, to Wolverine World Wide and private equity firms Blum and Golden Gate.). But the chain has struggled amid increased competition from online players and off-pricers such TJX Cos. and declining mall traffic. In its most recent filing, Payless has about $470 million in outstanding debt.

“The challenges facing retailers today are well documented, and unfortunately Payless emerged from its prior reorganization ill-equipped to survive in today’s retail environment,” Marotta said. “The prior proceedings left the Company with too much remaining debt, too large a store footprint and a yet-to-be realized systems and corporate overhead structure consolidation. As a consequence, despite our substantial efforts, we were ultimately unable to operate the North American retail and e-commerce operations on a sustainable basis.”

Payless is seeking customary initial relief from the U.S. Bankruptcy Court and Canadian Court, including authorization to support its operations during the process, authorization to continue payment of employee wages and maintain healthcare benefits and certain other relief customary in these circumstances. It is also seeking authorization to continue to honor customer gift cards and store credit until March 11, 2019, and to continue to allow returns and exchanges of applicable non-final sale purchases made prior to February 17, 2019, until March 1, 2019.
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