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America is ‘over-stored’ and Payless ShoeSource is the latest victim

A Payless ShoeSource in Manhattan. (Carlo Allegri/Reuters)

Payless ShoeSource became the latest major retailer to declare financial distress when, on Tuesday, the company filed for Chapter 11 bankruptcy and announced a restructuring plan that includes the immediate closure of 400 stores in the United States and Puerto Rico.

Further closures are possible as the company works “to aggressively manage the remaining real estate lease portfolio.”

Meanwhile, Payless said in a statement it will reduce its debt load by almost half and increase its presence in the e-commerce space.

“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify,” Payless chief executive W. Paul Jones said in a statement. “We will build a stronger Payless for our customers, vendors and suppliers, associates, business partners and other stakeholders through this process.”

The shoe store was founded in Topeka, Kan., in 1956 during the postwar boom and eventually expanded to about 4,400 locations in more than 30 countries. The company, which focuses on “everyday and special occasion shoes … at affordable prices,” bills itself as the “largest specialty family footwear retailer in the Western Hemisphere.”

Recently, though, the footgear empire has struggled. According to Moody’s, Payless’s revenue fell 4 percent from October 2015 to October 2016.

Malls are closing, historic brands are filing for bankruptcy. Are we in the midst of a retail apocalypse? (Video: Daron Taylor/The Washington Post)

Celebrities such as Tyra Banks, Sam Worthington and, for a time, Star Jones wore and hawked the company’s low-cost footwear, but such endorsements proved no match for market pressures that have affected many major retail giants that once seemed indomitable.

During the first three months of 2017, nine major retailers filed for Chapter 11 bankruptcy, CNBC reported, which “puts the industry on pace for the highest number of such filings since 2009, when 18 retailers resorted to that action.”

Moody’s, last month, listed 19 retailers as financially distressed, including Sears, J. Crew and Gymboree. Macy’s, J.C. Penney, RadioShack and The Limited are just a few of the companies that have announced closures this year.

“It’s been a downward spiral for traditional retailers,” Christian Magoon, CEO of Amplify ETFs, told CNN Money.

The rise of Amazon and online shopping are often cited as a cause for the troubles of brick and mortar retailers. (Amazon founder Jeffrey P. Bezos owns The Washington Post.)

“The model of online retailers is winning out,” Magoon said. “They are more competitive on pricing, they have better selection, and their convenience level is quite high.”

It doesn’t help, as Urban Outfitters CEO Richard Hayne pointed out, that compared to the housing market, the retail market is oversaturated.

“Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce,” Hayne said. “Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s. Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst.”

Added Hayne, “We are seeing the results: doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

Deborah Rieger-Paganis, managing director for AlixPartners consulting firm, shared a similar view in an interview with The Washington Post.

“We’re just over-stored,” she said. “That’s something that’s plaguing a mall, a strip center and a stand-alone location.”

Furthermore, those stores may be in the wrong places.

As the United States rose out of the Great Depression with the end of the Second World War, citizens flocked to the newly constructed suburbs. Although the suburbs still enjoy high levels of growth, the “nation’s urban population increased by 12.1 percent from 2000 to 2010, outpacing the nation’s overall growth rate of 9.7 percent for the same period,” according to the 2010 census.

“You have a lot of these suburban malls, but people are moving back to the cities,” Rieger-Paganis said. Without customers to shop in them, “those locations just aren’t performing well anymore.”

That’s one reason, Rieger-Paganis pointed out, that many big-box retailers are building in major urban areas where they’d previously been absent, a trend she expects to continue. Take Target, which opened a rare Manhattan location in October.

The shuttering of those suburban mall locations, meanwhile, may have dire effects for neighboring stores, even high-performing ones.

Struggling locations might launch promotions to up their top lines, while closing ones often liquidate their inventory in “everything must go” sales. Although attractive to consumers, these sales force other retailers “to be competitive” and severely cut their own prices — even when it’s detrimental to their bottom lines.

“That becomes a death-spiral of retailers,” Rieger-Paganis said.

Mix in the fact that many companies took on debt in the past couple of years when interest rates were relatively low then later had trouble refinancing when the debt began to mature, and the result is a toxic financial stew.

Jones remained confident of Payless’s future regardless.

“We are confident that this process will also enable us to leverage Payless’s existing strengths to succeed,” he said in a statement.

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