Learning from Failure- Analyzing the Closure of Payless ShoeSource Inc and Strategies for Future Sustainability

Learning from Failure- Analyzing the Closure of Payless ShoeSource Inc and Strategies for Future Sustainability

Payless ShoeSource Inc. was established in 1956 under the name Volume Shoe Corp., with its headquarters in Topeka, Kansas; the shoe retailer grew rapidly and was renowned as the largest shoe retail shop in America. In 2011, the retailer recorded $3.4 billion in sales. By 2018, it employed at least 18,000 individuals (Loeb, 2019). Unfortunately, the establishment was declared bankrupt, which led to the closure of the e-commerce site and the 21,000 outlets (George, Neal, & Sanchez, 2018). However, the franchises and licensed outlets remained in operation despite the move. This discourse shall provide an in-depth analysis of the company’s failure and strategies that could lead to its revival. Do you need help with your assignment ? Reach out to us at eminencepapers.com.

The Organization’s Performance

Payless ShoeSource enjoyed a considerable period of profitability, which led to its acquisition by the May Department Stores Company. This acquisition made the expansion process easy, leading to the establishment of at least 200 stores by 1981. In addition, sales also increased from $700 million to $1.5 billion. Unfortunately, the company’s sales began to drop, leading to a 6 percent shrinkage between 1993 and 1996 (George, Neal, & Sanchez, 2018). As a result, Payless ShoeSource was no longer retained as part of May Department Stores Company’s growth strategy in the long term. In 1996, Payless ShoeSource was tossed to shareholders, which served as a wake-up call to initiate changes that would lead to improvement. Some of the changes included closure and relocation of stores that did not bring in sufficient revenue. It also acquired a shoe company, Parade of Shoes, which was struggling. The retailer also expanded internationally, which was a successful venture. By 2000, the store had over 200 international outlets. In 1999, Payless ShoeSource launched its e-commerce site (George, Neal, & Sanchez, 2018). However, Payless ShoeSource’s expansion craze came to a fateful end as competitors such as Target and Walmart actively interrupted the process in the 1990s. This led to the closure of more than 100 stores, reduced the number of employees, and caused the company to file for bankruptcy in 2019.

Organizational Aspects that led to Failure

Payless ShoeSource had extensive fixed costs due to the numerous physical locations that were spread out both within the country and internationally. These fixed costs were not dependent on the volume of sales as variable costs (Collective Brands Inc., 2007). In addition, the number of employees working in the outlets increased the payroll costs significantly. Most importantly, the company’s debts also affected the amount of fixed costs. A decline in sales meant that the company would not be in a position to offset the fixed costs, which affected operations in the short term (Bell, 1918). Closure of stores not only reduced the sales, which were already committed to paying the fixed costs but also diminished the cash flow and net profits.

Payless ShoeSource enjoyed a significant market presence in the USA. The mature foot market played a critical role in maintaining its growth and earnings within the country. The difficulty that the US market presented was increasing the sales margin. To do this, Payless ShoeSource had to capture additional market share from its competitors in the USA. Its strategies failed to materialize and increase the market share as new competitors such as Zappos, Target, and Walmart reactivated their market presence (Collective Brands Inc., 2007). This affected the sales volumes as store closure took place, making it difficult for the retailer to survive in the market.

Payless ShoeSource stocked seasonal merchandise, which was dictated by the weather. This implied that if the company stocked merchandise suited for a specific season and clients failed to purchase all or most of it, it would be forced to mark down the prices. This affects the profits that were expected from the original price and inventory levels as well. Furthermore, the company’s products were obtained from a third party. The manufacturer’s inability to source raw materials in good time affected the stock levels, making it difficult for the company to survive when it lacks autonomy (Collective Brands Inc., 2007). The lack of long-term agreements with the suppliers meant that the relationships could be terminated at any time.

Strategic Plan to Re-brand the Organization

Firstly, the most important aspect of re-branding Payless ShoeSource is reducing the fixed costs. The cost structure of the organization is based on extensive physical locations that increase the rent and leasing expenses. Competitors such as Amazon provide the same products from online platforms. This means that their fixed costs are lower and profit margins sufficient to cover variable and remaining fixed costs. Therefore, it is necessary to eliminate most of the physical stores and remain with one main branch that has the most affordable rent. This drastic move changes the entire business model as Payless ShoeSource begins to utilize online platforms.

Secondly, the elimination of physical stores significantly reduces the number of employees needed. Reduced payroll costs are critical to the reduction of fixed costs. While Payless ShoeSource already employed fewer individuals, allowing clients to shop individually, the company needed numerous employees to operate the extensive physical locations. This kept the payroll costs high. With one main branch in each geographic location where Payless ShoeSource had a significant market share, the number of employees needed will be far less. As a result, earnings will not be negatively affected by the payment of fixed costs.

Thirdly, the reduction of physical stores reduces the debt of the company significantly. Each new physical location needs to be secured, equipped and stocked before it even makes its first sale. This crucial need has driven the company into enormous debts in the past. In addition, the piling interests have contributed to the high fixed costs. Thus, this has consistently eaten into the sales and created an enormous risk of closure in case of reduced earnings.

Fourthly, the elimination of physical stores will affect the company’s product portfolio. Due to this, the company will be forced to concentrate on one specific market segment. This should be chosen to match the most profitable among those it has been serving and the level of demand. The market segments may differ between regions due to the varying market and customer needs. Concentration on a specific market segment will allow the company to stock the necessary merchandise that does not hold excess financial resources, which affects the cash flow (Collective Brands Inc., 2007). As such, the company would need to create agreements with specific suppliers to ensure availability and eliminate the possibility of abrupt termination of relationships.

Finally, the company should embrace the online platform wholly. The elimination of physical stores leaves a gap that Payless ShoeSource has to fill to continue serving its clients in different locations. Adopting an online presence is critical in the reduction of fixed costs. However, this will require the company to establish reliable distribution channels that do not affect the inventory levels or increase the costs of the supply chain (Selvaraju, Beleya, & Sundram, 2017).

References

Bell, S. (1918). Fixed Costs and Market Price. The Quarterly Journal of Economics, 32(3), 507-524.

Collective Brands Inc. (2007). Collective Brands Inc. Annual Report. Retrieved from https://www.sec.gov/Archives/edgar/vprr/0804/08047299.pdf

George, E., Neal, N., & Sanchez, S. (2018). GNS Consulting.

Loeb, W. (2019). Payless ShoeSource Is Closing All Its Doors In The U.S. Forbes. Retrieved from https://www.forbes.com/sites/forbes-personal-shopper/2020/11/26/nordstrom-black-friday-2020-50-of-the-best-cyber-deals-you-can-shop-right-now/?sh=248c8ebc4649

Selvaraju, M., Beleya, P., & Sundram, V. P. (2017). Supply Chain Cost Reduction using Mitigation & Resilient Strategies in the Hypermarket Retail Business. International Journal of Supply Chain Management, 6(2), 116-121.

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Hindsight
This week, we discussed the future and the importance of forecasting and looking toward future growth. This can be a challenge for some companies, which often leads to failure. Choose an organization that has failed and closed its doors in the past five years and discuss what it could have done to stay in business.

Learning from Failure- Analyzing the Closure of Payless ShoeSource Inc and Strategies for Future Sustainability

Your work should include the following:
• Discuss the aspects of the organization that lead to failure.
• Develop a strategic plan to re-brand the organization and revive it as a new company.
• Your paper must be a minimum of 2 single-spaced written pages (not including the title and reference pages).
• Your work must include a minimum of 3 scholarly resources to support your thoughts.