These Are the Retailers That Will Benefit From the Payless Bankruptcy

After the dust settles and Payless ShoeSource cycles through its liquidation sales, low-price mass merchants will have the most to gain most from the company’s demise, according to a new report from The NPD Group.

The family-footwear retailer — which last week filed its second and final Chapter 11 petition in the past two years — is the No. 6 player in the U.S. based on unit sales, accounting for almost 4 percent of the pairs sold in 2018, according to NPD data.

Its average retail price per pair sold is around $17, per the market research firm’s tally, which falls directly in between that of Walmart and Target — leaving both companies in the sweet spot for nabbing new customers.

According to NPD’s customer receipt tracking service, Checkout, almost half of Payless footwear in-store buyers also bought footwear at Walmart in 2018. Twenty percent also bought from Target while Kohl’s landed in the No. 3 spot — although its average price per pair is double that of Payless.

Overall, Beth Goldstein, NPD executive director and footwear industry analyst, suggested Walmart is likely to reap the greatest benefits from Payless’ downfall — particularly if the former is able to leverage key differences between both firms and use it to its advantage.

“Walmart’s footwear consumers skew more lower income compared to Payless’s, presenting the opportunity for Walmart to attract a higher-income shopper to their footwear floor,” Goldstein said.

About half of Payless’ sales come from the fashion category, compared to Walmart’s 40 percent. Meanwhile, women’s footwear represents 60 percent of Payless sales, and only 30 percent of Walmart’s, per NPD data. Both factors also create more opportunities for Walmart to draw in customers who’ll need a new footwear destination after Payless is shuttered, Goldstein noted.

After much speculation — and a seemingly successful emergence from Chapter 11 in 2017 — Payless last week filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Eastern District of Missouri with plans to close up shop in North America and wind down its e-commerce business. (It is in the process of liquidating all 2,500 of its North American stores.)

The company, which had prioritized Hispanic consumers as part of its 2017 post-bankruptcy restructuring plan, said it would continue to operate its 420 stores across 20 countries in Latin America, those in the U.S. Virgin Islands, Guam and Saipan, and its 370 international franchisee locations in 16 countries across the Middle East, India, Indonesia, Indochina, the Philippines and Africa.

Getting to this point had been a challenging road for the 60-year-old chain, which has switched hands a number of times over the decades and seen its share of ups and downs. At its height in the late-2000s, the retailer counted more than 4,500 stores globally and had roughly $2 billion in annual sales. Its CEO at the time, Matt Rubel, was lauded for his mission to “democratize fashion” through the (at the time) revolutionary concept of high-low collaborations with designers such as Lela Rose, Patricia Field, Alice + Olivia and Christian Siriano.

But the firm ran into major challenges during the 2009 economic downturn as consumer spending plummeted, and it never again found its footing. Payless first staggered into bankruptcy court in April 2017 laden with nearly $840 million in liabilities — much of which stemmed from a 2012 leveraged buyout by private equity firms Blum Capital and Golden Gate Capital.

At the time, Payless’ contentious court proceedings included allegations from vendors and landlords that dividend payouts to its private equity owners made the company especially susceptible to collapse at a time when other factors were also hurting the industry at large.

Payless’ demise will lead to about 16,000 lost jobs and its impact is expected to extend to other footwear players such as Steve Madden, a yearslong private footwear maker for the firm.

According to NPD, overall, Payless ranked 17 in terms of total U.S. footwear dollar sales, representing about 2 percent of the market volume.