Payless to close 248 Canadian stores, says its 'ill-equipped' for market

TORONTO -- Mounting debts and a challenging retail market are forcing Payless ShoeSource Canada Inc. to shutter all of its North American stores by May.

The Kansas-based discount footwear retailer said Tuesday that it will soon file for creditor protection in Canada, making way for liquidation sales at the 248 locations it owns in the country.

The move comes just after Payless filed for bankruptcy in the U.S. and after Ohio-based shoe brand DSW Inc. shut down its Town Shoes Ltd. brand and the 38 stores it had in the country, saying the "competitive landscape for mid-luxury, mall-based footwear has dramatically changed, comparable sales have deteriorated consistently and generated significant operating losses."

Payless, which was founded in 1956 and previously filed for bankruptcy in 2017, has faced a similar market, revealed its chief restructuring officer Stephen Marotta in a press release, where he said the brand had tried to rejig its operations to no avail.

"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," said Marotta, who joined the company in January.

"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."

Documents filed with the Ontario Superior Court on Tuesday show the company's Canadian operations, which employ about 2,400 workers, had an oversupply of inventory as recently as this winter and was forced to sell merchandise at steep markdowns.

The documents said the company failed to pay February's rent for 220 stores it owns in Canada and reported an operating loss of more than US$12 million last year.

Marotta said in the filings that the company has been unable to integrate its physical stores with a digital offering. Only 200 stores are equipped with such a service, he said, leaving Payless "unable to keep up with the shift in customer demand."

As a result, he said Payless will begin closing its 2,500 North American stores at the end of March, though some will be open until the end of May while the company conducts liquidation sales.

Retail expert Brynn Winegard said Payless has long had issues because its business model was built around not always keeping inventory in every size for every shoe they sold but also because of the size of its real estate.

"Payless has had to decrease its footprint significantly, but they were over indexed in terms of how large and how much real estate they intended to maintain," she said.

"Competitive pricing online is so much easier with lower overhead. The big discount and big box stores have margins that are razor thin finding it very hard to compete with online retailers."

Payless, she said, also faced challenges from manufacturers increasingly circumventing traditional retailers by selling directly to consumers, often at lower costs.

Winegard suspects discount footwear sellers including Walmart Inc., manufacturers with large online presences and e-commerce brands like Amazon Inc. and Asian-based e-commerce giant Alibaba Group Holding Limited. will benefit from Payless's demise.

Payless has 420 stores in Latin America, the U.S. Virgin Islands, Guam and Saipan, and 370 international franchisee stores across the Middle East, India, Indonesia, Indochina, Philippines and Africa.