By Craig Patterson

Topeka, Kansas-based value-priced footwear chain Payless ShoeSource has announced that it will be closing all of its stores in North America as it files for creditor protection in the US and in Canada. All 248 Canadian units will close after store liquidation by this spring.

It comes at a time when other retailers are closing stores in Canada, which is proving to be challenging for some landlords. As well, about 2,400 workers will lose their jobs as part of Payless’ demise.

Payless was founded in 1956 and operates stores in 36 countries worldwide. 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. Those stores will remain open and are not part of the bankruptcy filing.

The Canadian Subsidiary, Payless Canada, will be seeking creditor protection pursuant to the CCAA in the Ontario Superior Court of Justice. The Canadian division has reportedly not paid rent for 220 of its Canadian units for February, and it reported an operating loss of more than US $12-million last year. Payless will use bankruptcy proceeds to facilitate winding down its retail operations in North America, which include about 2500 retail stores. Payless is also shutting down its e-commerce operations.

Effective immediately, Payless has discontinued its rewards programs, as well as any outstanding merchandise coupons in North America.

Liquidation is already beginning at some stores and all units will close by the end of May, according to the company in an email to Retail Insider.

Stephen Marotta, who was appointed to serve as Chief Restructuring Officer of Payless last month, said in a statement: “We have worked diligently with our suppliers and other partners to best position Payless for the future amidst significant structural, operational, and market challenges. Despite these efforts, we now must wind down our North American retail operations under Chapter 11 and the CCAA. However, Payless’ profitable stores throughout Latin America, which are not part of today’s filing, and our international franchisees’ stores will continue to operate business as usual in every respect. As we move through the process, we will work to minimize the impact on our employees, customers, vendors and other stakeholders.”

“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. 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.”

Mr. Marotta continued, “On behalf of the entire company, I’d like to express our deep appreciation for the hard work of our dedicated employees and their commitment to Payless customers, who have shown us tremendous loyalty for more than 60 years. We are also grateful for the many years of support by our suppliers and vendors, and we look forward to continuing to work with them to support our remaining operations.”

In Canada, Payless Shoes has retail space in diverse locations, ranging from urban street fronts to power centres to regional shopping centres. It remains to be seen what will be done with the chain’s real estate — in some instances, leases can be packaged and sold off, or individual spaces may be dealt with on a case by case basis. Payless’ closing comes at a challenging time in Canada, with several other chains also closing stores.

Toronto-based Town Shoes, for example, closed all of its remaining Canadian stores last month, and US-based Gymboree is in the process of shutting its Canadian operations. Crabtree & Evelyn shuttered its remaining Canadian stores last month, and Reitmans brand Hyba’s stores are in the process of being shuttered. Larger chains such as Lowe’s have announced that it is closing 27 stores in Canada under the Rona banner, and various other retailers such as J. Crew have been closing units in Canada recently.

This follows the loss of Sears Canada and Target in Canada, as well as US-based footwear chains Nine West and Rockport, which closed all Canadian stores last year.

Next week we’ll discuss this further as we present our 2019 Canadian retail industry outlook.

Craig Patterson, now based in Toronto, is the founder and Editor-in-Chief Retail Insider. He's also a retail and real estate consultant, retail tour guide and public speaker.

Follow him on Twitter @RetailInsider_, LinkedIn at Craig Patterson, or email him at: craig@retail-insider.com.

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