The Walking Company files second bankruptcy in 10 years

Dive Brief:

Shoe seller The Walking Company has filed for Chapter 11 protection, for the second time in 10 years. The retailer — which operates 208 stores in the U.S., including the FootSmart and Big Dogs Sportswear banners — said in a release that current shareholders have committed to invest $10 million in new equity. Its lender, Wells Fargo, has provided a $50 million bankruptcy loan.
The commitments, however, are contingent on the retailer "conforming their lease portfolio to market rents," CEO Andrew Feshbach said in a court filing. The company had already sought concessions from landlords before filing for bankruptcy, with limited success. Since filing this week, the retailer has already filed motions to reject five leases nationally, according to Feshbach. "Meanwhile, rent reduction negotiations are ongoing with landlords at virtually all of the [retailer's] remaining store locations," he said.
Walking Company, which filed in federal bankruptcy court in Delaware, expects its reorganization plan to be confirmed by the court in about 90 days. The company went into court with more than $40 million in outstanding loans and $11.7 million in bond obligations, Feshbach said.

Dive Insight:

Unlike other retailers that have made a second trip to bankruptcy court, Walking Company's Chapter 22 came a decade after its first filing. Others — including RadioShack, American Apparel and Wet Seal — had a much shorter span between court trips. If that means anything, it's a sign that the retailer's current troubles are further removed from its past woes.

Founded in 1991 as a retailer of European "comfort shoes," Walking Company eventually expanded into malls and broadened its focus to include more shoe types as well as clothing and lifestyle products. The pace of expansion quickened between 2005 to 2008, to include more than 200 stores, Feshbach said in his filing. The retailer financed the expansion by liquidating its Big Dog banner — though that business collapsed more quickly than expected, he said. The company also issued $18.5 million in bonds to finance the expansion and expand its internet business.

That expansion ran smack into a recession. By late 2008, 100 of the newer stores were not making their projected sales and profits, Feshbach said. The company also faced pricing pressure from big-box and mass-market retailers.

All that sent the Walking Company into bankruptcy, where it won rent concessions from landlords and reorganized with an infusion of cash from Wells Fargo and an investor group led by Kayne Anderson Capital Advisors. Feshbach said that, following its 2009 emergence from bankruptcy, the retailer's "core business significantly improved."

But now it's run into another sector downturn. The company's recent filing is similar to those of Payless, Gymboree, rue21 and True Religion, all of which entered and exited bankruptcy within months with fully formed and agreed-upon plans that made changes to the business executives said would better position them for the future.

Feshbach said in a press release that the company's commitment of exit financing from Wells Fargo and efforts to renegotiate leases are the "the final step in transforming The Walking Company into a more vertically integrated, omnichannel retailer that can not only survive but thrive in the current retail environment."

Along with the rent burdens, Feshbach said in a court filing that the loss of its largest vendor for Walking Company's private label shoes — which includes the ABEO brand, worth more than $112 million in sales through a growing wholesale business — cut ties. The company also suffered an unexpected financial setback when Wells Fargo devalued the inventory that backed its loan.

The retailer's agreements from lenders and investors bode well for an orderly bankruptcy process and future exit. It also signals that the merchant has the support of key stakeholders, who presumably see value in Walking Company as a going concern. Key to its future will be negotiations with landlords and, more importantly, whether it can make good on the financing to adapt its model and keep up with both customers and the secular changes in retail.