Where did Payless go wrong?
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.
- What Payless Shoes to Shut All U.S. Stores and Wind Down Online Operation – The New York Times
- Payless ShoeSource, Inc. History – fundinguniverse
- The Rise and Fall of Payless: The Major Moments Over the Years – Footwear News
- ‘A lot of problems would start at the top’: How Payless bungled its post-bankruptcy comeback – Digiday
- Retailer Payless ShoeSource set to shutter its U.S. stores: sources – Reuters
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?