Walking Co. filed for its second bankruptcy. Retailers not only face growing competition from online behemoth but from the brands they sell.

(Bloomberg)—A seller of Birkenstocks, the orthopedic sandals invented more than 100 years ago in Germany, is blaming its latest financial woes on Ugg boots, a sheepskin slipper that caught fire with Australian surfers in the 1960s.

Walking Co. Holdings Inc., which has sold “comfort shoes” from around the world in the U.S. since 1991, filed for its second bankruptcy in less than a decade on Tuesday. Its troubles show how retailers face growing competition not just from online behemoths like Amazon.com Inc. (No. 1 in the Internet Retailer 2017 Top 500) and Amazon-owned Zappos.com Inc., but the very brands they sell.

Santa Barbara, California-based Walking Co. cited the loss of a contract from its largest vendor, Uggs maker Deckers Outdoor Corp. (No. 153), as among the reasons for its bust.

Things had been going pretty good for Walking Co. after an earlier 2009 bankruptcy sparked by online competition had given the company a new rent structure, and helped it increase direct sales through its website. At the time, it also got into “proprietary” lines of footwear, which have higher profit margins—including its ABEO line.


Lost Uggs

But then Deckers pulled Uggs from its shelves in 2016, and Walking Co. was crippled.

“As a result of the difficult environment for store-based retailing in 2017, Walking Co. could not replace the lost Ugg sales fast enough,” CEO Andrew Feshbach said in a court declaration. This resulted in its inventory getting appraised at lower levels, leading its lender Wells Fargo & Co. to reduce the amount of capital under a credit line.

A representative of Deckers didn’t return a call and email for comment on why the company ended its relationship with Walking Co. But it isn’t that Uggs were going out of business, or even out of style. In a recent conference call to discuss earnings, Deckers said it was particularly pleased with Ugg sales, which grew 4% to $735 million, as a result of “full-price selling.” Uggs Classic Tall Winter Boot for women’s retail on Amazon.com and Zappos.com for $199.95, on Ugg’s own website for $200.

Brand control


There also was no lack of faith in future Ugg sales. “There’s a slipper moment happening, and I think Ugg is leading it, and I think we’re going to take full advantage of it,” Decker CEO Dave Powers said on the call.

“We’re definitely seeing brands take control of the selling process, going directly to consumers thanks to the rise of digital,” said Katie Smith, director of retail analysis and insights at Edited, which provides fashion industry analysis. “It protects the brand when so much margin erosion has occurred thanks to endless store discounting.”

Walking Co. isn’t alone in its troubles. The maker of Aerosoles flexible-sole footwear filed for bankruptcy in 2017; Payless Shoesource Inc. (No. 364) reorganized in 2017; and Nine West Holdings Inc. (No. 215) has been said to plan a bankruptcy with asset sales. This ongoing retail apocalypse has led companies with a combined $15.6 billion in debt to seek bankruptcy within the last year.

The company comes to Delaware court with a rough plan of how it intends to get past its hurdles, including calls for lender Wells Fargo and a group including its CEO to infuse more capital.

Restructuring plan


Richard Kayne of Kayne Anderson Capital Advisors LP, who put $10 million into the company during its 2009 bankruptcy, will be part of a group including Feshbach that gets all the stock in a new company in exchange for a second $10 million infusion. A $57.25 million debtor-in-possession and exit-financing package from Wells Fargo will go to to repay existing debt and finance operations as it reorganizes, according to court filings.

The plan still needs court approval, and Walking Co. said it seeks to hold a final hearing by June 12. The company, with around 1,600 employees, has a FootSmart Inc. affiliate it bought in 2016 with brands including Merrell, Easy Spirit, Clarks and ABEO and a Big Dog USA Inc. unit that sells activewear including hoodies and pajamas. Its Walking Co. unit accounted for about 97% of the combined company’s business in 2017.

Debt includes $40 million in senior loans, and more than $11.8 million in secured debt to holders of notes due 2019, Simon Property Group LP and Galleria Mall Investors LP, according to court filings.