Payless announced on Sunday, February 17 that it will close all of its 2,100 US stores, shut down its e-commerce operations and liquidate. It may be preparing for another bankruptcy filing, having first done so in 2017. It is said that the liquidation will not affect franchised or Latin America stores.
Founded in 1956, Payless at one time had 2,700 stores and was, arguably, the largest specialty shoe retailer in the country. But it has faced major competition from much healthier brands such as T.J. Maxx and DSW. Outdated inventory management systems and logistics difficulties didn’t help. And, of course, there was Amazon.
Then there’s the saga of Sears. After Sears filed bankruptcy in October 2018, most industry observers thought that would be the end of what once was the largest retailer in the United States. Nobody believed anyone could save it, except maybe the company’s chairman, Eddie Lampert. The bankruptcy court rejected Lampert’s initial $4.4 billion offer to buy Sears. Lampert protested, and a bankruptcy judge gave him more time. Lampert launched a new $5.4 billion bid, and in mid-January 2019, he won.
OK, so now what? Lampert claims his winning bid will save 50,000 jobs and keep 425 Sears and Kmart stores open in the United States. The plan calls for smaller stores and a focus on traditional strengths, such as appliances. But concerns remain. Will consumers want to buy a big-ticket appliance from a company that may not be around when it breaks? Meanwhile, Sears is searching for a new CEO with a proven track record of success in effective management and large-scale turnarounds. It will be interesting to see who will be willing to take that job. Will Sears make it? As I often say, time will tell.
Payless and Sears are dramatic examples of the difficulties of some iconic retail brands, but they’re not alone. Recently, David Simon, chairman and CEO of the Simon Property Group, admitted he’s nervous. Simon Property Group is the biggest mall owner in the United States. Not that he could necessarily predict what happened to Payless, less than a month ago he said: “We are concerned about a few [retail bankruptcies] that could shake out in the first quarter.” Last fall, Simon said he had already put Sears “in the rearview mirror.”
Some newer, smaller retailers are coming online, but major anchor stores, the lifeblood of any major mall, are waning. Mall owners are seeing tough times ahead and are looking for new and non-traditional tenants to fill space and generate excitement. Simon says the future of the mall is all about “live, work, play.”
Given stiff competition, rising rents and the need for enormous amounts of operating capital, many familiar retailers are facing strong headwinds in today’s economy. As early as mid-2018, Clark.com, a consumer action group, predicted at least eight possible retail bankruptcies in 2019. Among those were J. Crew, Neiman Marcus, JC Penney, and Office Depot. It’s interesting to note that Payless was not on their list in either 2018, or 2019 given that they had declared bankruptcy for the first time in 2017.
The simple answer is that nobody can predict exactly what will happen in the world of retail bankruptcies. But times are tough. Be careful where you buy your major appliances.