When the largest family footwear retailer in the Western hemisphere files for bankruptcy, implications are to be expected.
Rumblings of a Chapter 11 filing by Payless ShoeSource have been in the air for months but now that the retailer has pulled the trigger, experts are beginning to assess the damages — not the least of which is a loss of jobs for associates employed at 400 Payless stores that are closing immediately.
But, two popular U.S.-based shoe brands could also feel some effects from the retailer’s financial challenges, according to Citi Research analyst Corinna Van der Ghinst.
In a memo today, Van der Ghinst noted that Skechers USA Inc. could be a key beneficiary of Payless store closures while Steve Madden — a producer of private label footwear for Payless — could shoulder some losses.
In the case of Skechers, “given [its] competitive advantages in the $40 price point range, faster speed to market than peers, and a strong brand connection with value and mid-tier consumers,” according to Van der Ghinst, there could be lots of new opportunities.
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Meanwhile, Steve Madden’s management has already indicated softness in its private label business — estimating that the division would be down 10 percent in FY17 —although CEO Ed Rosenfeld declined to speak about the Payless business specifically during the firm’s fourth quarter conference call.
Van der Ghinst said she believes Madden has already made steps to buffer some losses in anticipation of Payless’ bankruptcy.
“Steve Madden provided early indications of risk to its $70 million private label business at Payless since the beginning of this year and has been proactively managing tighter inventory/order terms there,” Van der Ghinst said.
And, with Payless initially indicating only 400 planned store closures — some reports had suggested the company would close 1,000 stores — Van der Ghinst said Steve Madden’s potential losses could be slimmer.
According to Payless’ Chapter 11 filing, factories in Taiwan, Hong Kong and parts of China make up the majority of the list of Payless creditors with the largest unsecured claims while, U.S.-based Fila USA Inc. has the eleventh largest unsecured debt, at $5.2 million. (A list of creditors holding the 50 largest unsecured claims must be filed in Chapter 11 cases.)
Although the retailer said it has negotiated agreements with some lenders, dozens of manufacturers, agents and suppliers are owed millions by the struggling firm. And, the fate of those debts remain unknown.
