Dive Brief:
- Baltimore-based Shoe City, a sneaker and streetwear retailer, filed for Chapter 11 on March 31 in the U.S. Bankruptcy Court for the District of Maryland. The company, which has 39 stores in Maryland, Virginia and Washington, D.C., has now begun going out of business and lease sales at all locations.
- In its bankruptcy filing, the company said it has liabilities and assets of $10 million to $50 million, and that it is unable to pay $16 million of unsecured outstanding debt. Shoe City also said it owes an additional $3.1 million on a $10 million line of credit with Truist Bank.
- As a result of liquidity concerns, Shoe City said some of its vendors would only ship product on a cash-in-advance basis. Then last month, the company’s top vendor terminated its contract with the retailer, leaving Shoe City “with no viable options to save the business.”
Dive Insight:
Shoe City had been a family-owned business since its inception as Eileen Shoes in 1949. The company rebranded to Shoe City in 1980. But as a result of years of falling sales and net income, “unfortunately, after 74 years in business, the Shoe City legacy has come to an end,” Stanley Mastil, the company’s chief restructuring officer, wrote in a first-day declaration.
According to court documents, Shoe City’s troubles worsened about three years ago. The retailer stopped receiving the same level of sneaker releases and high-end goods from key vendors, which are “critical to this industry.” In fiscal year 2020, the company had an operating loss of about $280,000 and in fiscal year 2021, that loss grew to $1.76 million, “which had a significant negative impact on the Debtor’s financial position and liquidity.”
In May 2022, Arklyz Group, the parent company of rival retailer The Athlete’s Foot, agreed to acquire Shoe City. But Arklyz failed to close on the deal and it fell through. Mastil said in the court filing that “the proposed deal was full of synergies between two companies committed to their respective communities, loyal customers, and philanthropic initiatives.”
Shoe City “was never able to regain profitability” after that, according to court documents.
The problems continued into the company’s 2022 fiscal year, when comparable store sales decreased by about $8.5 million from prior years. During the current fiscal year, sales continued to decrease by almost $5 million through January as “none of the company’s efforts to improve its cash position came to fruition.”
Shoe City owes New Balance nearly $1.6 million and Timberland is owed $1.4 million, court documents show. Denver-based Funding Circle, which offers business lines of credit and term loans, is due $1.38 million. Puma and Nike round out the top five creditors; those companies are owed $1.35 million and about $665,000, respectively. Other creditors include Under Armour, Adidas, Fila, Asics and Reebok.
After signing on to two separate forbearance agreements with Truist, which further restrained Shoe City’s liquidity, the retailer determined that closing all its stores in bankruptcy was the best path forward. According to a Thursday announcement from Gordon Brothers, Shoe City, whose official business name is Esco Ltd., began 30% off sales of original prices on footwear and apparel. Store fixtures are also for sale, as are retail leases.
The company, which also does business as YCMC, reflects that the business is permanently closing on its website as well. A notice says returns will still be accepted and previous orders will be processed and shipped as long as merchandise is still available.
All Shoe City locations are expected to go out of business by May 31, according to the bankruptcy filing. The store locations range from 2,000 to 9,900 square feet and include street front, regional mall and strip center locations. The Gordon Brothers’ announcement described the store footprint as offering high-traffic locations with favorable lease terms available.
At the time of its Chapter 11 filing, Shoe City employed 161 full-time employees and 233 part-time employees. About 61 employees worked at the corporate office or warehouse locations.
