Shoe Retail Company Trying to Stay Afloat
Shiekh Shoes is searching for financing in order to avoid having to file for bankruptcy protection. The struggle that the retail company is facing is simply not having enough cash flow.
Shiekh Shoes is not in a default position yet, but it is struggling to maintain a high level of inventory before the holiday season, which is the biggest money-making period for retail companies. The two main reasons that the retailer is seeking financing is increased competition and a shift in the shoe retail sector toward selling products through e-commerce channels.
The company, which focuses on catering to “sneakerheads,” owns and operates more than 120 physical retail locations. Shiekh Shoes has store locations in California, Nevada, Arizona, New Mexico, and Michigan.
Before getting further into the details of the company, a sneakerhead is a shoe collector. They are always looking for unique shoes that will likely increase in value. Most of the time, sneakerheads are on the lookout for shoes that have limited releases, especially ones that are associated with celebrities.
Why Is Shiekh Shoes Facing Tough Times?
Shiekh Shoes is known for selling unique shoes from large brands such as Nike Inc, Puma SE, and Adidas AG. One issue is that these companies are looking to sell directly to consumers and not rely on retailers such as Shiekh Shoes.
Another issue is how sneakerheads are purchasing their shoes. These days, consumers simply purchase their shoes online when a new shoe design is released. Those shoes are then delivered to their homes. Previously, sneakerheads would have to wait in a long line outside of a store on the release date, and be lucky enough to be in line early enough to purchase the specific shoes that they want. With the increase of online purchases, fewer customers have been visiting Shiekh Shoes stores.
Since Shiekh Shoes must charge the suggested retail price for its products, its revenue is the same as that of the shoe manufacturers that sell directly to consumers or to online retailers. The problem for Shiekh Shoes and other brick-and-mortar retailers is that they have higher operating costs because they have to maintain physical stores. Therefore, from each sale at a brick-and-mortar retailer, less money goes toward the bottom line. This gives an advantage to companies that sell the same products online.
Due to more online competition and the high cost of running a physical store, Shiekh Shoes must seek financing in order to strengthen its balance sheet. It does not seem that there has been a change within the organization in order for it to benefit from the online shopping trend.
What Could Happen?
Since financing is needed in order for Shiekh Shoes to operate through the holiday season, the future could see dramatic changes. For one, there could be a reduction in the overall store and employee count. While closing stores, the company could move its focus toward fulfillment centers for online orders, which would require fewer employees once they are set up.
Regarding financial matters, there is debt on the Shiekh Shoes balance sheet, which could result in the business shrinking, since creditors could become concerned about their outstanding loans and want to get their money back. This would force the company to downsize. In the end, there is still a possibility that the company will file for bankruptcy.
“Shiekh Shoes reportedly scrambling to avoid bankruptcy,” RetailDive, November 20, 2017.