Dive Brief:
- Shoes for Crews and about a dozen of its U.S.-based affiliates filed for Chapter 11 bankruptcy on Monday in in Delaware. The slip-resistant footwear maker, which provides private label products worn by many people in service industries, said it secured $30 million in debtor-in-possession financing to support operations and ensure the continuity of manufacturing and distribution.
- Court documents indicate the shoe company claims liabilities of between $500 million and $1 billion and assets of at least $100 million. The company said its top 10 creditors, which include Ceva Logistics and New Balance, are collectively owed more than $20.5 million.
- Shoes for Crews said it also intends to enter a stalking horse purchase agreement to sell the business and continue it under new ownership with the support and backing of its first lien lenders, according to a statement and court documents. That process should be completed in about two months, the company said in a statement.
Dive Insight:
In a court filing, Chief Financial Officer Christopher Sim said “a confluence of factors” led the company to seek bankruptcy protection. They include inflation; a general downtown in retail; a shift away from brick-and-mortar shopping to online buying; and the pandemic, which forced retailers to eat the expense of supporting brick-and-mortar assets.
“Over time, these factors have tightened the Debtors’ liquidity and complicated their vendor relationships, culminating in a liquidity crisis by the fourth quarter of 2023, when the Debtors faced dwindling cash flows and the inability to access even incremental liquidity,” Sim said.
Court documents indicate the company hired Ropes & Gray last year as restructuring legal counsel and Solomon Partners Securities as investment banker to explore strategic alternatives, including a sale to a third party and a debt-for-equity exchange. The company had entered and repeatedly amended forbearance agreements until March 25, when Shoes for Crews and its first lien lenders failed to reach a new forbearance extension agreement.
In October, Solomon began contacting potential bidders about the sale of the company. Six bidders submitted letters of intent in January. However, Shoes for Crews’ first lien lenders rejected the sale proposals as they fell short of a $290 million threshold to release the assets. As a result, the company says it began discussions with the first lien lenders to serve as a stalking horse bidder.
Borrowings under a pre-bankruptcy first-lien credit facility were due to mature on April 27. As of Monday about $282.2 million in aggregate principal and accrued but unpaid interest remained outstanding, Sim said. Shoes for Crews said it had about $480 million of funded principal debt as of Monday.
Despite recent difficulties, Sim said the Shoes for Crews business “has been generally successful” as a result of diversified sales channels. Customers can buy shoes through corporate programs, direct to consumer through the company’s website or on third-party sites like Amazon or Amazon-owned Zappos.
Although the company has two retail stores in Orlando, Florida, and Las Vegas, Sim said sales channels through business-to-business programs make up a significant portion of revenue. In 2023, business-to-business sales represented nearly 76% of the company’s total revenue, while in 2022, business-to-business corporate programs accounted for 67% of total revenue. About 18% of total revenue was attributed to DTC sales that year.
Florida-based Shoes for Crews employs about 340 people, uses over 500,000 square feet of distribution capacity and sells about 4 million pairs of shoes annually. The company services over 30,000 corporate accounts across a diverse customer base.
“Today’s announcement marks an important step forward for Shoes For Crews that will position us financially to continue investing in our industry-leading products and delivering for our valued customers well into the future,” President and CEO Donald Watros said in a statement. “We are confident that with a stronger balance sheet and the strong support of new ownership, Shoes For Crews will be on track to continue in our mission of creating a safer workplace by continuing to develop and provide the leading slip-resistant footwear to bring every employee home safely.”
Established in 1984 in New York City by Stanley Smith and his son, Matthew Smith, Shoes for Crews moved its corporate headquarters to Florida in 1995. The company entered the European market in 2001 and has continued to grow in that region, most recently expanding into Spain and Italy. CCMP Capital Partners Investors acquired the company in 2015. The company’s international entities in Canada, Europe, the Pacific and Asia are not a part of the current bankruptcy case and no impact on their operations is expected.
