Payless’ Financial Struggles Could Send Multiple China-Based Factories Into Bankruptcy

Fears surrounding the financial state of Payless ShoeSource continue to mount internationally and new reports out of Taiwan are shedding light on the far-reaching implications of the retailer’s struggles.

According to a story published in Taiwan’s United Daily News on March 3, one Taiwanese bank is reportedly owed a total of 1,153,000,000 NTD (roughly $37 million) by companies that have been doing business with Payless. Meanwhile, at least one major Taiwanese shoe factory is owed a past-due debt of $100 million (or $3,100,000,000 NTD), the publication reports.

Amid speculation that cash-strapped Payless will be unable to make good on all of its outstanding debt, Zhenmao Zheng, vice chairman of the Financial Supervisory Commission for the Republic of China, is already mulling worst-case scenarios.

Specifically, Zhenmao Zheng reportedly told the United Daily News that if Payless is unable to pay up, dozens of “companies that have business with Payless [could] go bankrupt” and that the Taiwanese bank, referenced in the article, will then have to write off the debt its owed as non-performing loans and bad debts.

Last week, FN reported that several new sources in China and the U.S. had contacted the publication with allegations of unpaid bills and unethical business operations on the part of Payless.

Speaking exclusively to FN, one China-based agent said he and multiple China-based factories, for which Payless is a top revenue source, have been cracking under the weight of Payless’ unpaid debt. The source alleged that when some of the factories contacted the retailer for payment, Payless had not been forthcoming about when payments will be made but warned that if they stop supplying the shoes, Payless would not continue to do business with them in the future.

“Out of desperation, the factories [have complied],” the source said, adding that he and others are hoping Payless can recover and resume payments.

If Payless pursues the Chapter 11 route in order to address its reported $665 million in debt and is unable to successfully recover, there is a chance that many of its unsecured creditors will go unpaid, as secured lenders will get first dibs on the firm’s assets. At the same time, if the firm is able to remain in operations but opts to significantly downsize its fleet and product offerings, several factories that relied heavily on the retailer could lose a top revenue source. The company told FN exclusively in September last year that it already planned to close 350 and 500 stores over the next few years as a proactive move. More recent reports have suggested the number of store closures could be closer to 1,000.

Sources told FN today that a bankruptcy filing from Payless is expected in April.

FN reached out to Payless for a response regarding the new reports but the retailer declined to comment.

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