Payless ShoeSource Closing All Stores, Filing for Bankruptcy
If you were waiting for the other shoe to drop over at Payless, that time has come. After struggling with finances for several years, the company will officially be filing for Chapter 11 bankruptcy later this month, and shuttering all of its stores, according to reports from Reuters.
The bankruptcy filing is the second for the company, which first filed in 2017, leading to the closing of 800 stores.
While it’s easy to assume that the financial troubles were caused by increased online competition from the likes of Amazon, and a change in customer buying habits that have moved away from traditional mall retail, some experts are pointing to “vulture capitalist” private equity groups that purchase companies through a leveraged buyout (LBO) and then provide debt services as the company spirals toward bankruptcy.
“Far too many LBOs are simply asset stripping operations by Wall Street vultures who load the company with enormous debt, then asset strip the cash from the company by paying themselves obscene special dividends and management fees,” states a 2017 article at Wall Street on Parade by Pam Martens and Russ Martens. “On June 12 [of 2017], the official committee of unsecured creditors to Payless, consisting primarily of Payless stores’ landlords and vendors, alleged in a filing in U.S. bankruptcy court that the private equity firms involved in the Payless LBO in 2012, Golden Gate Capital and Blum Capital, had “siphoned over $400 million out of Payless.””
Similar stories have emerged following the bankruptcy of Sears, Toys R Us and Gymboree — just three out of the dozens and dozens of large chain retailers that have closed and/or filed Chapter 11 over the past three years:
- According to The Week, Toys R Us was purchased by private equity groups in 2005, taking on over $5 billion in debt while the private equity groups collected over $200 million in advisory fees.
- According to New Republic, Sears was “run into the ground by hedge-fund king Eddie Lampert” who spent money on stock buybacks to reward investors, created a real estate investment vehicle to collect rent on properties, and collected fees from lending personal funds to Sears.
- According to Edspira, Gymboree had no debt in 2009 and was profitable. It was taken over by a private equity firm in 2010, saddling Gymboree with $1.2 Billion in debt, increasing interest expenses by a factor of 360 — from $250,000 to $91 million.
“There will surely be more bankruptcies by all types of private equity-backed companies, and the debate will intensify around what constitutes an appropriate level of debt,” stated Jared Dillan in a 2018 Bloomberg article on the topic. “That’s another way of saying people will become very angry as mounting bankruptcies lead to job losses. Then, it will only be a matter of time before popular opinion turns against the world of PE and its extremely well-compensated executives.”
There are currently 15 Payless ShoeSource locations throughout Central Ohio. There are no specific clearance sales or closing dates announced as of the time of publishing.
For more information, visit www.payless.com.