Payless Shoes Analysis

This excerpt is from a group paper on Payless Shoes for MBA 563 (Product and Brand Management) completed Fall 2019. In 2019, Payless Shoes filed for Chapter 11 bankruptcy and closed all of its North American stores. In this assignment, we were asked to propose a new business model for Payless to keep their business afloat.

The company:

Payless Shoesource, a fashionable and affordable footwear company, was founded in 1956 by cousins Shaol and Louis Pozez in Topeka, Kansas. Payless was the first self-select environment where prices started below the average sales price of shoes at competitor stores. Their company built success by offering a large variety of fashionable shoes at low prices. In the 1970’s, Payless began developing its own footwear that would eventually lead to private labels representing a majority of its products. For decades, Payless was one of the largest and most successful family-owned businesses in the country. In an attempt to rebrand, Payless introduced a new logo in 2006, which was designed to amplify the new Payless brand - to inspire fun and fashionable possibilities for the family. After much success, Payless went private in 2011 in a leveraged buyout. By 2019, after over 60 years of fashion-focused affordable footwear, Payless filed for Chapter 11 bankruptcy, closing all 2,500 retail stores in what could be considered the largest retail liquidation in history. Although all North American stores have been closed, Payless still carries a global presence in thirty-five countries: 750 brick-and-mortar stores in Central America, Carribbean, South America, Asia, Middle East, and North Africa. Payless continues to sells their products through Amazon as well.

SWOT Analysis:

Payless has many internal positive attributes. Their strengths include:

• Price: Payless focused on targeting 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. The brand was seen as “affordable family footwear.”

• Promotion: Permanent bogo sale where consumers could buy one pair of shoes and get one half off. This helped the bargain shopper and create an incentive to purchase more than one pair.

• Placement: Primarily in shopping malls as well as many brick and mortar stores.

• Product: Fashion footwear for any wear. Many “knock off” versions of name brand shoes were sold. Affordable and convenient for the busy mom and young professional 

Although they have some strengths, Payless also has internal, negative factors detracting from their strengths. Their weaknesses include:

• Narrow marketing strategy

• Late to adopt new trends

• Negative associations with the brand

• Did not recognize when a positioning is no longer successful and a pivot is needed. 

• Target customer should have changed/expanded. 

• Lost in differentiation with competitors such as Walmart, Target and Kohls.

• Little investment in new technologies such as e-commerce, recycled materials, unique manufacturing and production methods.

Externally, there are a few notable opportunities for Payless. These External factors that can contribute to Payless’s success include:

• New Markets: Payless has been expanding into new markets and is currently in 35 additional countries, as well as selling their shoes through Amazon. Payless launched Hispanic marketing in the U.S. prior to bankruptcy, which helped reach an important and under-served portion of their customer base. They have the opportunity to expand into “street-wear” shoes as well as alternative business models like subscription or rental services.

• Innovation: Previous example: “Cultural Hacking” marketing scheme - opened a fake luxury store. They have the opportunity to continue to do these “cultural hacking” marketing practices, but also have the opportunity to expand their social media presence and expand omnichannel marketing.

• Future partnerships: Payless began developing influencer partnerships prior to bankruptcy, but now it’s important to develop those influencer strategy to reach those outside of the US or via Amazon.

Payless also has many External factors you have no control over. These threats include:

• Competitors:

• Direct competitors: DSW, Shoe Carnival, Famous Footwear, ShoeDazzle, JustFab

• Indirect competitors: Target, TJ Maxx, Kohls, Walmart, Amazon

• Market Trends: Due to the rapidly changing retail environment and decline in traditional brick-and-mortar stores, many companies are switching to alternative consumption choices (subscriptions). If Payless does not alter the way customers consume and buy, they will continue to decline.

• Consumer Behavior is changing: Customers are transitioning to a quality over quantity ideology.

•  Market demand: Global footwear market valued at $222.4 billion industry in 2017. A CAGR of 3.1% from 2018-2026, increase in demand for sports and designer shoes.

Marketing Strategy:

Their self-service strategy was new to retail in the 1950’s and 1960’s which made it easier for Payless to employ less people as customers were able to shop and try on shoes with minimal supervision. In its height in the late 2000s, Payless used collaborations with designers to “democratize fashion” according to previous CEO Matt Rubel. Some of these designers included Lela Rose, Patricia Field, Alice & Olivia, and Christian Siriano. By 2016, in order to compete with Target and Walmart, Payless began switching marketing focus from price but also on style, launching the slogan “Payless for style.” Payless was active on social media and often used social media influencers to promote the brand. In an attempt to rebrand, Payless decided to use the concept of “cultural hacking,” and created a fake grand opening for a luxury designer brand called Palessi and inviting social media influencers and influential shoppers. The participants were convinced the shoes were designer until Payless revealed the truth at the end of the event. The goal of this was to attract people that typically overpay for fashionable shoes. Although they have closed North American and Puerto Rico stores but will continue to offer products through Amazon and have stores in Latin America and international franchises will not be affected.