Payless ShoeSource Inc. is putting the finishing touches on a new master plan.
Elements of the blueprint include a ramped-up approach to omnichannel and accelerated expansion in global markets, but according to Neil Hansen, division senior vice president of store development at Payless, the company’s ace in the hole is a revamped real estate strategy in the North American market.
“We asked our customer the biggest reason behind her decision to shop [at a particular shoe store], and [she said that] the important things to her were finding a breadth of assortment — she likes lots of options — and having the styles in her size,” explained Hansen.
The first Payless Super Store — a larger and more-stocked build-out with an added focus on experience — launched in November 2012 to address the evolving needs of its core customer. Fueled by positive feedback, the number of super stores has quickly climbed to more than 60, and Hansen said Payless will double that number within the next five years.
But the growth will not come without casualties.
Payless — which went private in 2012 after 16 years as a publicly traded firm — plans to close between 350 and 500 stores within the next three years, according to Hansen. Escalating rents have topped the list of challenges for many retailers who have shuttered doors in recent months, but Payless CEO Paul Jones said the company’s resolve to close several hundred stores is a proactive one.
“High rental costs haven’t impacted us as much in terms of putting pressure on company sales or driving pricing changes,” Jones said. “But it does make us look a little harder at profitability at the store level. Stores have to be more productive now to remain viable locations in our portfolio, or rent rates have to be more competitive for us to remain in a particular location.”
Hansen also noted that since the company has 4,400 stores in more than 30 countries, it has some flexibility with store closures and can relocate some employees in order to minimize layoffs.
“We’re actually very nimble in regards to our store positioning,” he said. “We have a number of stores that are smaller, so it’s not like a Macy’s, where it’s a big deal to close a store. We are able to relocate [stores] as the customer shifts their focus of where they’re shopping — we’re able to be fairly disciplined on that.” (Macy’s Inc. announced last month its plans to close 100 stores, in addition to the 40 doors it closed earlier in the year).
Perhaps the most notable consumer shift of late has been toward e-commerce, and Payless management said it is also making aggressive moves in that realm — although Jones admitted there is some work to be done.
“I recognize that we have to deliver omnichannel capabilities with a sense of urgency,” he said. “Almost every IT capital project underway at Payless relates to some sort of capability that the project will unlock for us.”
Among the retailer’s efforts to ramp up its digital presence is a plan to roll out a buy online/pick up in store feature, Hansen noted. “We’re not there yet,” he said, “but we continue to grow handsomely with regard to [omnichannel], and it continues to be a major strategic initiative.”
In the meantime, super stores continue to drive customers into Payless’ brick-and-mortar spaces and also provide an avenue for global growth. The company has opened super stores in Costa Rica and in the Dominican Republic, adding to its more than 800 total doors outside North America. (Payless also has three super stores in Canada.) “We’ve had a positive response,” Hansen said. “We categorize [their success] in terms of the four levers: traffic, conversion, number of units purchased and average retail.”
In cases where the company has shuttered a standard location and replaced it with a super store within the same retail center, Hansen said it uses those four levers to compare and determine the overall sales lift accomplished via the new super store.
“We have seen a lift in traffic, conversion and the number of units [customers] buy,” Hansen explained.
Experts Weigh In:
Farla Efros, president of HRC Advisory
On omnichannel goals: “This is a critical piece for any organization, and it [relates to] consumers’ desire for instant gratification — particularly buy online/pick up in store. Payless is a bit behind compared with some of their competition when it comes to [launching that], but it’s not an easy transition, offering buy online/pick up in store — there’s a lot of logistical issues that go into it.”
On the Payless Super Store concept: “This ties nicely into where millennials and Generation Z as well as their parents are going and [the kinds of things] they’re looking for. This concept is going to give Payless some competitiveness with the DSWs of the world.”
On plans to expand internationally: “I’m always a bit cautionary on international expansion. You’ve got to fix your North American business first before you start to expand internationally because sometimes [global business] can become a distraction.”
On store closures: “They’re being pretty strategic. The stores that Payless is closing will [probably] pay for the [super stores] that they’re going to open.”
Jeff Van Sinderen, senior analyst with B. Riley & Co. LLC
On the Payless Super Store concept: “I would approach that with some healthy skepticism — most retailers need smaller stores and bigger omnichannel where e-commerce can function as an ‘endless aisle.’ It may work in some cases, but I would be concerned about the incremental occupancy expense of bigger stores.”
On omnichannel goals: “Investing in digital capabilities is a critical and ongoing necessity. Strong digital can drive traffic, conversion and incremental purchases. The consumer often browses online before heading to a store and, in many cases, they make purchases online that they pick up in store to avoid shipping fees and lag times. Many retailers have a high attach rate
for incremental purchases associated with [buy online/pick up in store].”
On planned store closures: “The U.S. is the most over-stored of any market right now — closing a few hundred stores is a good start for Payless.”