‘A lot of problems would start at the top’: How Payless bungled its post-bankruptcy comeback

Nearly two years after emerging from a bankruptcy filing, Payless ShoeSource is reportedly preparing to file for bankruptcy protection again.

Payless joins a group of struggling retailers like Pier 1 imports, Gymboree and Shopko that struggled to carve a place for themselves as customer spending shifted online and mall traffic declined. Payless has faced fast-fashion competition, the lack of a compelling online presence and private-label pressure from large retailers like Walmart and Target, which have made it difficult to attract and keep customers.

More urgently, staff turnover at all levels, coupled with the lack of a long-term strategy, has caused Payless to break down again in the two years after it filed for bankruptcy the first time. According to one former employee who worked on Payless’ digital marketing team in 2018, the retailer failed to tackle core challenges around customer retention, brand strategy and in-store experience in the critical time frame following its bankruptcy exit.

“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,” said the former employee. “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.”

After Payless filed for bankruptcy in 2017, it closed 400 stores, and a group of creditors, including hedge fund Alden Global Capital, took over ownership. It emerged from bankruptcy with $400 million in loans, after reducing its debt from $800 million.  A key issue standing in the way of a turnaround was dwindling staff numbers. Over the spring and summer of 2018, Payless moved its headquarters, along with many of its departments, from Topeka, Kansas, to Dallas, Texas. During this time, staff positions in the merchandising department and elsewhere were reportedly cut. Many vacant roles were not filled, and another group of 170 employees was laid off in November 2018, according to the former employee.

Thanks to the job cuts as well as management changes, Payless apparently dropped the ball on a long-term project critical to its revival: the relaunch of the company’s e-commerce site.

“A lot of [the problems] would start at the top with the turnover [of] leadership, and not necessarily looking to the big picture of relaunching the e-commerce site,” the former Payless employee said, adding that the new site was supposed to be mostly complete by the end of the summer of 2018. “It was put on hold for no concrete reason, because the investment was already there.”

Instead of being able to quickly address new challenges, employees were often waiting for decisions from leadership, narrowing the window of time available to recover.

I would say it was less pressure than lack of guidance and sitting around and waiting for direction because things weren’t getting signed or approved — a lot of things had to go through Alden staff or the board of directors. We were waiting around for very simple things,” said the former employee.

Meanwhile, marketing efforts that materialized were carried out without regard to longer-term customer acquisition or retention goals. Last November, Payless worked with an outside agency on a social media campaign around a fictitious shoe brand, Palessi. Payless posed as a luxury brand selling the same products, and it invited influencers to make purchases. Despite an initial buzz generated from the publicity campaign, the brand failed to capitalize on it and build a longer-term audience.

“In a 24-hour news cycle, they hit the jackpot, but how is this going to affect the bottom line, and how is it going to drive sales?” said the former employee. “We needed a big splash to get people talking about Payless, but there was no brief past that.”

Beyond e-commerce and branding, in-store experiences also struggled to captivate customers and build loyalty at its 2,700 locations. While other established retailers focused on private label-brands and exclusive product releases, Payless lost out because it didn’t invest in developing any sort of distinctiveness in its inventory, said digital marketing consultant Judge Graham.

“They continue to be a cheap ‘no name’ brand, and they’ve never reinvented themselves,” he said. “There are too many options; the market is crowded both online and in brick and mortar.”

One reactive strategy used by the brand was aggressive discounting, a way to drive traffic to the online store that took away from a longer-term plan to build customer loyalty, the former employee said. Meanwhile, customers were trained to wait for deep-enough discounts (often 40 percent off ticketed price) before they would make purchases, putting pressure on margins.

“There were very quick pivots in what the global discounts were going to be, straining the levels of effort within existing teams, rather than working toward longer-term goals like retargeting after cart abandonment,” the former employee said.

In addition, store presentation and layout were also hurdles for the brand, causing friction for customers looking for a reason to enjoy the shopping experience.

“It’s depressing when you walk in — it’s between a Kmart and a Target — it’s hard to find things, and products are haphazardly stocked,” said Dorothy Crenshaw, CEO of Crenshaw Communications.  “I don’t think the brand really stands for anything other than value, and it’s just not enough.”



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