Where did Payless go wrong?

Discussion
Photo: Getty Images
Feb 19, 2019
Tom Ryan

Payless ShoeSource on Saturday confirmed that it plans to close all 2,100 of its locations in the U.S. and Puerto Rico in coming months after failing to find a buyer.

The company is expected to file for bankruptcy filing in the weeks ahead to sell real estate. Roughly 1,500 international franchises and Latin American stores are unaffected.

Payless, which claims to be “the largest specialty family footwear retailer in the Western Hemisphere,” was founded in 1956 with a focus on affordable footwear. One way it managed to keep prices low was operating self-service stores with limited staffing.

The more innovative strategy was developing its own footwear that would eventually lead to private labels representing the majority of its mix starting in the seventies. According to fundinguniverse.com, developing in-house brands “allowed Payless to maintain tight control over style and quality, the two issues that had driven customers away from many discount chains in the 1970s.”

In 2011, its last year as a public company before going private in a leveraged buyout, 65 percent of its product was procured directly, with the rest coming from third party agents. At the time, Payless focused on lower income consumers with an average annual household income of about $65,000 and the sale of non-athletic footwear to women and their kids at prices below $30 per pair.

Payless apparently began losing its differentiation as its nearest budget competitors, including Walmart and Target, kept expanding and elevating their in-house shoe offerings. Off-price shoe sellers, such as Famous Footwear, DSW and Shoe Carnival as well as Kohl’s and TJX Cos., rapidly expanded to bring branded shoe labels within reach of Payless’s value customer.

In the mid-2000s, a push to “democratize fashion” with new styles and freshness found some success, according to Footwear News. The chain filed for bankruptcy protection in April 2017, reduced its debt by $400 million and emerged by August 2017. But a former employee who worked on Payless’s digital marketing team in 2018 told Digiday that the company has recently been impacted by continued management turnover.

Other articles on the closings have attributed the chain’s demise in the U.S. to online competition that has also led to bankruptcy filings from Pier 1 imports, Gymboree and Shopko.

DISCUSSION QUESTIONS: Were the challenges at Payless ShoeSource’s business model due more to external or internal factors? In hindsight, how might management have fixed the problem? What lessons should the rise and fall of Payless offer?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I think what did Payless in was that their model was no longer unique. "
"All the responses are certainly valid, but I’d like to summarize it to one key point — bad leadership."
"Payless is a textbook case of how a lack of retail and product innovation ends. "

Join the Discussion!

26 Comments on "Where did Payless go wrong?"


Sort by:   newest | oldest | most voted
Ray Riley
BrainTrust

What’s the difference between a Payless and a DSW? Payless was over-stored sure, but the quality and cleanliness of stores, development of team members, range of merchandise, and website? Lastly, when your name is “Payless” in 2019, does that require me getting in my car to visit your store? The model expired 10 years ago.

Georganne Bender
BrainTrust

The difference is that Payless sells cheap shoes, DSW carries designer footwear at discount prices. Both stores sell shoes but the quality or in-store experience can’t be compared.

Ray Riley
BrainTrust

Indeed!

R M
Guest
2 months 5 days ago

DSW has known brand names, a good rewards program and much better site/selection/search.

Lauren Goldberg
BrainTrust

I think what did Payless in was that their model was no longer unique. Self service footwear at low prices – you can now get that at Walmart, Target or any off-price retailer. Their target customer no longer needed to make a separate trip for shoes — they could find what they were looking for elsewhere. At that point, they made no attempt to differentiate and provide the customer any value.

gordon arnold
Guest

Payless executives failed to promote the brand with marketing endorsements and product information such as quality comparisons, product enhancements and modern advertising. The e-commerce lack of market participation is another failure. They did well selling price to the extent that the market sees them as not much for less money. Selling price is a tell tale sign of being unimaginative and usually limits a company’s ability to survive economic downturn intact.

Brandon Rael
BrainTrust

The answer is clearly both. Payless had a good run and certainly thrived in the glory days of the late 1990s and early 2000s — the aggressive retail expansion era. While the hyper discounts and self service shoe model had a long and successful run, the arena Payless dominated became very congested with the increased off-price competitors, department stores opening up their own off-price model, and of course the ubiquitous presence of Amazon.

Payless lost touch with the changing retail landscape and never improved the customer experience in their stores. While the company recently parodied what a luxury shoe store could be with their “exclusive Palessi” model, they actually proved that their customers would be open to a bit more curation and better in-store/online experiences.

The unfortunate outcome is a familiar one where thousands of stores will be closed and there will be jobs lost by very loyal employees.

Georganne Bender
BrainTrust

Well, now we know how well the Palessi stunt went over. In retrospect, it might have helped if Payless focused more on fashion – affordable fashion – than just price.

As the article points out, you can buy inexpensive shoes in any number of places. Target made it chic. But the Payless store experience never changed. The shoes were stylish, Payless partnered with designers, but shoppers still walked into boring stores with high, hard to shop fixtures, and a disconnected person standing behind the checkout counter. Shoes are sexy, the Payless experience was not.

R M
Guest
2 months 5 days ago

True: “You can buy inexpensive shoes in any number of places.” AND…with credit card price-matching programs you can get brand name shoes where you want to buy and then electronically get a price difference back when you screenshot a lower price.

Cynthia Holcomb
BrainTrust

Payless did not evolve with the market. The Payless private label shoe selection became less and less competitive, offering repetitive shoe offerings while other budget retailers seasonally offered up-to-date, fashionable shoes, at similar price points. Another Payless misstep was not offering athletic shoes in the 2000s which gave rise to the athletic lifestyle shoe of this decade. A sad lack of vision on the management’s part. I imagine there were a number of people who raised the red flag voicing lack of product innovation internally. Obviously those voices were not heard. Reinvention requires new ways of thinking and doing product. Payless is a textbook case of how a lack of retail and product innovation ends. What a waste of tremendous resources.

Bethany Allee
BrainTrust

Bingo. They didn’t pay attention to the folks who shopped at Payless. Instead they invested their time and money in stunt marketing — and while it garnered some publicity, they made fun of people and that doesn’t seem like a great way to get additional folks in your door. Plus, the world doesn’t need additional negativity. RIP Payless.

Rich Kizer
BrainTrust

I think this is the point: every year, retail changes by a minimum of 10 percent. Everything changes – communications, product, service, the way customers buy, the way product is promoted … it doesn’t stop. And the Payless ship apparently never lifted anchor while the rest of the industry was sailing into rediscovering ways to romance the customer. What’s that old saying: there’s room at the top, just not room enough to sit down.

Rob Gallo
BrainTrust

Cheap, self-service footwear worked for a long time. But then everybody else caught up to and then surpassed Payless. The competition offered stronger fashion, similar or slightly higher prices for much better quality and/or the convenience of other categories during the same shopping trip (online or in stores).

Steve Montgomery
BrainTrust

Not being familiar with Payless stores, I asked my wife about the demise of Payless when the story broke Saturday. Her opinion basically matched Ray’s regarding the stores. They were not a place she wanted to shop for the same reasons he noted. The quality of the shoes had deteriorated to where they were worth less and warranted paying less.

That being said she reiterated that she and most of her friends still liked being able to go to a store to see and try on shoes rather than ordering online and possibly playing the “not what I expected and return” game. I concur.

Brian Kelly
Guest
2 months 5 days ago

Sears, Gap and Payless all failed because their selling model was not regularly adjusted to meet the demands of a changing shopper. What we are watching is the accumulation of irrelevance around the selling model: product, price, service, place and communications. Across the range of engagement, Payless did not provide a reason to shop.

Jim McElroy
Guest
2 months 5 days ago

Let’s not forget the leveraged buyout a la Toys “R” Us, which drastically lowered their financial ability to invest in the business during a time of significant change.

Ed Rosenbaum
BrainTrust

Too many stores. Undermotivated staff. Hard-to-find sizes. Failure to keep up with the competition and create a difference. You can get the same poor service and quality at Target, Walmart and even traditional department stores. So why go to Payless when you do not have to. What else can we say about the demise of Payless?

Bob Phibbs
BrainTrust

After their laughable punking of social influencers last fall you could see the writing on the wall. Marketing campaigns like that and “Ship Your Pants” are harbingers of much more fundamental weakness. Quite simply the mantra that the money is only at the top and bottom doesn’t hold. Poor service, self service, and BOGOs do not add up to a sustainable model especially when the product is generic and cheap.

Steve Dennis
BrainTrust

As we see over and over, the middle continues to collapse. Physical retail isn’t dead, boring retail is. Payless had uninspiring stores, me-too merchandise, look-alike marketing and did not execute well. Retailers that fail to become more remarkable are destined to experience a similar fate.

Lee Peterson
BrainTrust

They didn’t move fast enough on all fronts (especially e-com), they didn’t reposition their brand and they didn’t move fast enough when the world was collapsing around them. That’s the trifecta of imminent retail death! Nothing’s more important today than speed, innovation and confident decision making, and they displayed none of the above.

Also continues to prove out the old retail adage that if you’re all about low price and low quality, there’s always going to be someone who does that better. Always.

Laura Davis-Taylor
BrainTrust

All the responses are certainly valid, but I’d like to summarize it to one key point — bad leadership. Every single thing we call out here could have been addressed by leaders who were in the trenches, working together and properly pivoting to survive in a landscape that’s BEEN changing — not has changed. I have no doubt that every single idea pointed out was pushed up to them and not supported.

The Digiday article link has as compelling quote from a former employee: “It was about not having the bandwidth of the team to align with what was going on in stores in North America as well as what was going on online. There was a revolving door of employees leaving, and the new organization wasn’t aligned with specific goals or would make very quick pivots if certain executions weren’t working out.”

They went on to say that things weren’t getting signed or approved — they were waiting around for very simple things.

Bad leaders. It’s so frustrating. 🙁

Craig Sundstrom
Guest

Although usually when I see the words “leveraged buyout” in an obituary, I mutter to myself something along the lines of “debt = death.” In this case I’ll point to “everything.” The company was about low price — right down to their name, and that’s a hard business model to succeed with when others imitate it. And there have been a lot of stores imitating it.

William Passodelis
Guest
2 months 5 days ago
When I was in college and for several years thereafter, I shopped Payless as a “go to” for shoes. They had an unbelievable selection of dress and casual shoes and many styles of boot. It was amazing. The quality was poor, however the prices were ridiculously low. On sale, I usually bought under ten dollars. When the shoes wore out, I was usually over them anyway, and they DID last for a few seasons. It was terrific. I now can buy better quality shoes, however, the selection at Payless fell apart about ten years ago. All of the interesting and different shoe styles they had previously offered dried up and disappeared. The offerings became stale and expected. Also their prices steadily rose to the point where they lost out to much better quality shoes at many other retailers at the same price or less with a sale! So now Payless is going out of business. I am really sorry for all the people that are losing their jobs! Their closure otherwise has no effect on… Read more »
Kenneth Leung
BrainTrust

Payless couldn’t maintain its differentiation with newer competition such as DSW, plus I think people realized that cheap shoes are bad for their feet and with the emphasis of health and wellbeing, people are willing to pay a bit more for designer shoes of better quality. You can get low price shoes now at many discount outlets in the self service model, so Payless got backed into a niche it could not maintain.

Min-Jee Hwang
Guest

Payless was beaten by the competition doing what Payless does, but better or with more diverse offerings. For example, DSW attracts Payless’ audience but has a wider selection and name brands, while Target, Kohl’s, etc. sell affordable shoes but also a wider assortment to be a more one-stop shop than Payless. Payless is not unique nor does it offer value beyond its competitors.

Fredrik Carlegren
BrainTrust

“We don’t think retail’s dead. We think mediocre retail is dead” to quote Dave Gilboa, co-founder and co-CEO of Warby Parker. Bingo. This a shoe category about as much as railroads were in the “train business.” This is an accessory, a style, a performance category and more. One that is filled by many other choices that consumers have on all fronts, with easier access and a better overall experience.

wpDiscuz
Braintrust
"I think what did Payless in was that their model was no longer unique. "
"All the responses are certainly valid, but I’d like to summarize it to one key point — bad leadership."
"Payless is a textbook case of how a lack of retail and product innovation ends. "

Take Our Instant Poll

Are Payless’s challenges more due to internal or external factors?

View Results

Loading ... Loading ...