The Rise and Fall of Payless ShoeSource

By filing its second Chapter 11 bankruptcy in federal court, the once popular and profitable shoe store will be shutting down its entire operation, which includes the loss of more than 16,000 jobs of Payless employees. There are a number of reasons for the decline and fall of the closure of the 2,100 stores around the United States, so it is important to realize no single factor actually contributed to its fall.

The first factor many people will point to is its inability to compete with online retailers such as Walmart and Zappos, which just happens to be owned by Amazon (so they’re basically the same thing). While this is true in part, Payless had a solid brick and mortar presence in downtown shopping areas of major cities and suburban malls that attracted buyers who were out and about casually shopping.

But the latter of these two target areas, suburban malls, is another reason for its decline and fall. Malls throughout the country have fallen on hard times, with many of them closing due to reduced traffic as some have become sites of higher crime rates. More than a few mall closings were the direct result of the decline of other traditional retailers such as J.C. Penney and Sears. If you had been to a major mall before 2008 you would likely have found a Sears and/or J.C. Penney store on one end of the mall. Payless was bound to feel the impact of significantly reduced mall traffic sooner or later.

A third factor is the retail shoe business itself. One reason Walmart and Zappos are strong survivors of the retail shoe business is that they have the cash to keep the ever-changing styles in stock. The online competition is one thing, but Payless needed the capital to stay competitive, capital it had to borrow after its first bankruptcy filing. When the sales didn’t match up with the new debt, the handwriting was on the wall in large print.

But these are all external factors that led to the Payless fall. In other words, there are certain things Payless had control of, but factors such as a crumbling mall sector and the active shoes shopper becoming a shoe shopping couch potato could not be influenced by any marketing strategy. There were several internal factors, errors made by marketing and management that would heavily contribute to sealing its fate.

Earlier the newly acquired debt was mentioned, but there was a reason behind it. An expansion plan was created that some industry experts said was almost irrational found new ways to squander the newly acquired cash. The perceived problem was that Payless tried to expand too fast with the apparent idea that the idea of size, other than that related to shoes, was important. It didn’t matter if the expansion was on the brick and mortar end or the shoe inventory because once the money is committed there was no turning back.

The new investment required more buyers, and that meant Payless had to come up with something that was beyond meh to bring new shoe buyers in – or give former customers a reason to come back. Neither happened, in large part because its competitors were simply giving customers reasons not to leave. It is a brutal lesson for businesses that sell products. A lost customer may never return if their new suitor does enough to simply keep them coming back.

Then there are the shoes themselves. If an established, higher end store like Nordstrom has entered the competition (it has) then your new shoe offerings had better be at the very least, something to get potential customers to at least pause to look at. They weren’t, and so all the new inventory sat around in stores – especially during the holiday season. When the damage had been assessed, Payless had no choice but to run up the white flag.

A natural consequence, a good one, for the closing of the Payless stores is the liquidating inventory shopping. It was announced that the stores will be open through the end of March, with a fair number of stores being open until the end of May. After that, Payless will shut its doors forever.