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February 19, 2019

Payless plans to close during its second bankruptcy, costing 16,000 workers their jobs

Photo | Flickr via Mike Mozart Payless says it will close all of its 2,100 locations in the United States and Puerto Rico.
By CNN BUSINESS

Payless ShoeSource is heading back into bankruptcy. This time it will close its doors.

The 63-year old discount shoe retailer filed for Chapter 11 bankruptcy protection on Monday, less than two years after it emerged from its previous bankruptcy.

The bankruptcy filing Monday follows the start of going-out-of-business sales Sunday at its 2,500 US and Canadian stores. About 16,000 employees will lose their jobs. Store closings begin in March and should conclude by the end of May.

Payless is the most recent retailer to file for what has become known as "Chapter 22," in which a company emerges from Chapter 11 only to file for bankruptcy a second time and shut down its business.

RadioShack, American Apparel and Gymboree all suffered that fate.

It's one of the reasons Sears may struggle to remain in business long term, despite the company's promises that it will be a profitable and competitive retailer once again as it emerges from bankruptcy.

"The plans always make sense on paper. But the reality is if there are a fundamental problems with the way a customer perceives a retailer, bankruptcy doesn't solve that," said Philip Emma, a senior analyst with DebtWire and an expert on retail bankruptcies. "The is very little margin for error for these companies that try to make it."

Payless had too much debt, too many stores, and too much corporate overhead when it emerged from the earlier bankruptcy, according to Stephen Marotta, who was named last month as the company's chief restructuring officer to prepare for the bankruptcy.

Payless also ran into a series of problems that derailed its plans. A computer system issue hurt its back-to-school sales last year, and it carried too much inventory for the holiday season, which forced it to cut prices. Payless' North American business lost $63 million 2018.

The company says it owes $1.3 million in severance payments to employees that were laid off before the filing, but it is not sure whether it will be able to make those payments. Nor is it clear that it will be able to pay severance to the employees who lose their jobs going forward as the stores shut down. In the US bankruptcy cases, creditors are paid before employees that are owed severance.

Payless will keep open 420 stores in 20 other countries, primarily in Latin America, as well as its stores in US Virgin Islands, Guam and Saipan. But it's core North American business will close.

Low unemployment should help

The good news for Payless employees is the US unemployment rate is near a 50-year low, and retailers are having a particularly tough time finding workers. There are more job openings than than candidates.

Just 4.3% of job seekers that identify as wholesale and retail workers couldn't find a job last year, according to the Labor Department. That matches the lowest retail and wholesale unemployment rate on record, which was set in 2000, the year that the government started calculating those industry-specific rates.

That low rate comes even as more consumers are shifting from buying goods at brick-and-mortar stores to making purchases online. More than 5,500 US stores closed last year according to Coresight Research, a retail think tank.

Although the number of jobs in traditional retail has fallen, the number of people who want to work in the industry has fallen even faster. That tight retail labor market has led some companies to increase incentives.

Walmart, the largest US business employer with more than 1.5 million US employees, now offers bonuses to employees with a good attendance records. Retailers are also raising their hourly wages to try to attract workers. Target will be paying a minimum of $15 an hour by next year.

"Retailers are starved for talent at all levels," said Greg Portell, lead partner for the retail practice of consultant A.T. Kearney. "It's a healthy market to be walking into. Front line retail is an extremely hard job. And it's extremely important to retailers to have the right talent. That's why you see wages going up, that's why you see opportunities."

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