This Retailer Bankruptcy Will Lead to the Largest Liquidation by Store Count in the US. Liquidation Sales to Start Next Week

Saturday, February 16, 2019
By Paul Martin

by Wolf Richter
Feb 15, 2019

Brick-and-Mortar Meltdown for its new shareholders: All of them PE Firms.
By store count, this is likely the largest retailer liquidation in the US: Payless ShoeSource is planning to file for bankruptcy again later in this month – just 18 months after having emerged from its first bankruptcy. And this time, it will shutter all its remaining 2,300 or so stores in the US and Puerto Rico, let everyone go at those stores, and be done with it in the US.

Its stores in Canada and Latin America will be unaffected by the bankruptcy filing and liquidation, according to people familiar with the situation, cited by Reuters and the Wall Street Journal.

The specialty shoe retailer has been trying to sell itself in recent months, with the help of financial advisory firm PJ Solomon. But there have been no takers, the people said. And so now, the company moved on to Plan B, a second bankruptcy filing in the US and liquidation. The sources said the going-out-of-business sales would start early next week.

And so this would be it for another huge US retailer that had been bought by private equity firms, had then been gutted and stripped off assets, which left the debt-burdened retailer no means to invest in and build a vibrant online business and a functional fulfillment infrastructure, and so it totally missed the transition of shoe sales to e-commerce.

Even I, a veritable fossil on the Silicon Valley scale, buy all my shoes online because I have trouble getting what I want in the size I want at the brick-and-mortar stores. It’s too much hassle and too much of a waste of time to trot from store to store just to look for a pair of shoes. The internet has mastered this aspect of life.

Payless bankruptcy proceedings revealed just how easy it is for PE firms to strip out assets even shortly before a bankruptcy filing.

PE firms Golden Gate Capital and Blum Capital Partners acquired Payless in 2012 in a leveraged buyout when publicly traded Collective Brands was broken up. After Payless filed for bankruptcy in April 2017, aggrieved creditors filed a claim in bankruptcy court, alleging that Golden Gate Capital and Blum Capital Partners had siphoned over $400 million out of the company via a special dividend before the bankruptcy filing. The PE firms were concerned enough about this claim that they agreed to settle it in July 2017.

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