Payless Shoe Source has filed for bankruptcy as it plans to shutter about 400 locations across the United States as well as in Puerto Rico. By filing for Chapter 11 bankruptcy, the footwear retailer is hoping to shed debt. This will allow it to continue operating with a view to positioning it for success in the long run.
“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment,” said Paul Jones, the chief executive officer of Payless in a statement.
Shift to ecommerce
Besides reducing the debt load by close to half, the Topeka, Kansas-based shoe retailer which was started in 1956 also plans to invest more in ecommerce.
Just like many other retailers, Payless has been struggling financially in the recent past. Last year in October, revenues for the shoe retailer declined by 4% year-over-year. This was despite a marketing blitz that saw celebrities such as Sam Worthington, Star Jones and Tyra Banks endorse their products.
The woes facing Payless are similar to what the rest of the retail sector is going through. In this year’s quarter alone, CNBC has reported that nine major retailers have filed for bankruptcy. This is the largest number of bankruptcy filings since 2009. In that year alone, 18 retailers filed for bankruptcy. But even the retailers that have not filed for bankruptcy yet are facing financial distress. This includes RadioShack, J.C. Penney, Macy’s, Sears, Gymboree, and J. Crew.
Amazon is coming
The challenges facing the brick and mortar retail stores has been blamed on the growth of online shopping and especially Amazon. This is because online retailers are able to offer more competitive prices and possess a wider selection. Customers also tend to find the convenience level of online shopping to be high.
Another reason that has been given for the woes facing the brick and mortar retail sector in the United States is that the industry is oversaturated. Compared to Japan or developed economies in Europe, the per capita retail square feet in the U.S. is over 6 times higher. Most of the capacity was added between the 90s and the early years of this century and the bubble is now bursting.
Poor location of stores may also be another factor as a significant portion of the retail space was created in malls situated in the suburbs. However, recent trends show that the population growth in the cities has outpaced that in the suburbs leading to poor performance of stores in these locations.