Payless Cashways faces challenge winning back its many vendors

Since filing for Chapter 11 bankruptcy on June 4, Payless Cashways Inc. has cleared two critical hurdles -- negotiating a one-year financing deal and winning court approval to downsize the company, including closing 39 stores.

The next challenge is to persuade vendors to ship goods so it can fill the shelves of the 73 stores it wants to continue operating.

If vendors cooperate, the company -- which has one store in Oklahoma City, one in Norman and two in Tulsa -- expects to generate $500 million in annual sales. If it can do that, it expects to have positive cash flow. And if it gets positive cash flow, it expects to be able to pay down its debt.

But that all hinges on getting vendors back on board.

Working toward that end, Payless executives met Tuesday with scores of vendors at the company's corporate headquarters in Lee's Summit, Mo. Later this month, a company contingent again will try to win vendors back in Chicago at the hardware industry's annual trade show.

The building supplies retailer not only is beseeching suppliers to resume shipping goods, but also is appealing to them to extend terms that would give Payless 10 to 30 days to pay invoices.

But many vendors have been burned twice by Payless -- through one Chapter 11 filing in 1997 and another in June -- and are reluctant to make such commitments. One vendor who attended Tuesday's meeting said the doubt was evident.

"As they were trying to convince us to come back, it was almost like we were all engaging in a `you first' mentality," said the vendor, who asked not to be identified because Payless still owes the vendor money. "It was like let someone else be the guinea pig and be the first to ship."

In a release after Tuesday's meeting, Payless Chief Executive Officer Millard Barron said: "Obviously, we are facing a tremendous challenge; however, I am encouraged that we can successfully execute our business plan with reasonable levels of vendor support."

Payless filed for Chapter 11 in June. The move came after sales dropped precipitously in May, prompting lenders to tighten terms, which in turn impeded Payless' ability to restock shelves.

Meanwhile, through its store-closing plan, Payless has wiped Minnesota, Kentucky, Indiana and most of Illinois off its map. Elsewhere, it has made less drastic cuts. That leaves the company with a core group of 73 stores in 13 states stretching from California to Texas to Iowa. Concentrations of the stores can be found mostly in Texas and Colorado, and California to a lesser degree. Vendors said the company considers its key metropolitan markets to be Denver, Dallas and Sacramento, Calif.

The company told the vendors at Tuesday's meeting that its focus would remain selling to a tight range of customers from the professional contractor to the project-minded do-it-yourselfer who "wants to shop where the pros shop." If all goes according to plan, Payless expects its sales split between the professionals and do-it- yourselfers to be 65-35.

Some vendors and current and former Payless employees said the key to Payless' future, beyond getting vendors on board, is convincing disillusioned customers to give the company another chance.

It's a given in retailing that customers can be extremely fickle. They become easily frustrated when they go to a store and aren't able to find what they want, when they want it, and at a reasonable price.

But one ray of hope, one vendor said, is that Payless has had a good pro customer business until the past several months. "They have an excellent list of pro accounts -- no doubt about that," the vendor said. "They're going to have to have some sort of incentive for the pro to get them back, but first they've got to get the goods on the shelves or there's no reason to even ask them to come back."

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