Friday, June 14, 2024
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Delaware Shoe Brand Files for Bankruptcy

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Delaware Shoe Brand Files for Bankruptcy

Delaware Shoe Brand Files for Bankruptcy

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There is no better indication of how terrible the US economy has become than several businesses filing for bankruptcy around the same time. The latest company to file for bankruptcy is Shoes for Crews, a major player in the production of slip-resistant footwear.
The company, along with several of its American affiliates, has filed for Chapter 11 bankruptcy in Delaware. However it’s not all doom and gloom; they’ve been able to secure a lifeline of $30 million in financing to keep things running and ensure that production and distribution can continue.

Financial Challenges in the Footwear Industry Keep Growing

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The footwear industry has endured rising financial challenges in recent years as companies struggle under the weight of increased costs and shifting consumer preferences. For Shoes for Crews, a competitive market and the economic strain of maintaining physical stores in a digital age compounded these challenges.

The Big Shift From Retail to Digital

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The shift from retail to online shopping has significantly affected traditional business models in the footwear industry. Shoes for Crews experienced this shift firsthand. According to CFO Christopher Sim, “a confluence of factors,” including the pivot away from brick-and-mortar stores, put significant strain on the company’s liquidity and complicated vendor relationships.

The Financial Highwire

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According to The Wall Street Journal, Shoes for Crews is walking a tightrope with liabilities somewhere between half a billion to a billion dollars, compared to $100 million in assets. The list of who they owe includes the likes of Ceva Logistics and New Balance, tallying up to over $20.5 million.

COVID-19 and Its Impact on Footwear Retail

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As Sim describes, the pandemic’s lasting effects sped up the decline of in-store shopping and increased online sales, creating significant operational and financial challenges for Shoes for Crews.
The pandemic made retailers reassess their investment in physical assets as consumer behavior shifted towards digital platforms.

A New Beginning

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Shoes for Crews is now actively seeking to sell the business and continue operations under new ownership. With support from their main lenders, they’re looking to seal the deal on sale in the next couple of months, as per the latest updates from the court and company statements.

Strategic Financial Restructuring Efforts

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To address its current financial issues, Shoes for Crews hired Ropes and Gray and Solomon Partners Securities. These measures were crucial as they sought to manage a growing liquidity crisis and explore options such as debt-for-equity exchanges to make the business stable.

About Debtor-in-Possession Financing

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Debtor-in-possession financing is what allows Shoes for Crews to continue operations amid bankruptcy. This financial inflow will help maintain production and distribution while the company undergoes its restructuring phase, demonstrating a critical survival strategy for businesses under financial duress.

Reasons for Bankruptcy

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How did Shoes for Crews get here? They have a perfect cocktail of inflation spikes, retail woes, a pivot to online shopping, and the economic fallout from the pandemic to thank for it, according to the company’s CFO, Christopher Sim. These conditions left the company’s cash reserves struggling and complicated dealings with vendors.

What the Future Holds: CEO’s Perspective

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The brand’s CEO has expressed optimism about the future, which gives a glimpse of how the company will evolve post-bankruptcy. The interesting dynamic is that bankruptcy may ultimately be necessary for long-term growth and sustainability.

Rate of Success

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There is much optimism but InCharge reports that only about 10% of Chapter 11 bankruptcies result in success. However, with the right strategies and adaptation to consumer trends and demands, Shoes for Crews can not only survive but thrive in the highly competitive footwear market.

Inflation Is to Blame

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In its bankruptcy filing, Crews also explained that inflation played a big role in its eventual filing. High inflation in the United States has caused many consumers to think twice about buying items they may not need. Instead of splurging on shoes, many consumers are saving to pay for groceries and essential items.

The Sale Saga

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It was not easy to strike a new deal. Efforts hit a snag by March, and even though six potential buyers stepped forward, their offers didn’t meet the lenders’ $290 million benchmark to free up the assets.
Bloomberg reports that the lack of a new deal prompted a pivot to consider a “stalking horse” bid to keep the company afloat. This was a tactical move to keep the sale process on track while securing the company’s future.

A Count Down on Debt

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As the maturity date for their pre-bankruptcy credit facility looms closer, Shoes for Crews is facing approximately $282.2 million in outstanding debt. The financial pressure is part of a larger $480 million debt burden they’re shouldering.

Staying Afloat

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Despite the fiscal storm, Shoes for Crews has kept its sails up, thanks to diverse sales channels. They have resorted to various tactics to maintain their market presence, including corporate contracts, direct sales from their website, or platforms like Amazon.

Shoes for Crews in Europe

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The brand’s products are also available in Europe. Since its introduction in 2001, the company has grown immensely throughout Europe. Recently, it expanded its reach into Italy and Spain. The company also has international entities elsewhere in the world, such as in Asia, the Pacific, and Canada. Fortunately, Crews’ bankruptcy filing is limited to the United States. As such, the company’s international entities will not be affected by this ongoing bankruptcy case.

Looking to the Future With Hope

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President and CEO Donald Watros, does not see the bankruptcy as an end but as a strategic pivot towards an optimistic future. He said “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. 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.”