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Payless puts its best foot forward under new CEO

By ASSOCIATED PRESS
Published June 15, 2006

INDEPENDENCE, Mo. - When Matt Rubel took over as chief executive of Payless ShoeSource Inc. last summer, he inherited a company a little worn down at the heel.

With more than 4,600 stores, Payless is the largest specialty shoe retailer in the country. But years of conservative management had left it in the worst place for a seller of fashion: out of date.

The company continued to use a 1980s-era bubble-lettered logo, some stores hadn't seen a new coat of paint in a decade and the stores' simple layout of shoe box aisles fostered self-service but didn't do much to showcase new products.

Worse, customers found the product mix itself leaned more toward providing functional shoes for bargain shoppers, not catering to style mavens.

"People just thought of us as cheap shoes," Rubel said as he stood outside the Payless store in Independence Center, a mall in suburban Kansas City.

The Independence store represents Payless' future and reflects Rubel's vision for the company.

A new, contemporary logo hangs above the door, beckoning shoppers into a brightly lit area, dubbed the "hot zone," with displays of the store's latest styles.

The shoes themselves - including fashionable cork wedges, espadrilles and strappy sandals - reflect more contemporary fashion and feature more brand names, such as Champion and Airwalk, to go alongside the chain's in-house products.

The company this fall plans to roll out Abaete for Payless, a line of shoes created by New York designer Laura Poretzky, and it recently signed a deal to put out shoes affiliated with the American Ballet Theater - a virtual lock for attracting young girls and their moms.

The challenges are still massive. Overall, the shoe market has exploded in the past year, growing almost 11 percent to $42.7-billion, according to market research firm the NPD Group.

NPD analyst Marshal Cohen said shoppers are becoming more judicious in their apparel purchases, buying several pairs of shoes to freshen up their wardrobe rather than replace it.

The true bargain hunters could prove a sticky balance for Payless as the company tries to introduce higher-priced shoes without forgetting the shoppers who aren't willing to pay more than $20 for a pair.

In Payless' first quarter, the company said sales for stores open at least a year rose 0.4 percent from the same period a year ago. The uptick came from costlier shoes - average price rose 11.2 percent - and not more buyers - unit sales declined 8.6 percent.

Analysts are optimistic, however, noting that the company's first-quarter earnings rose 19 percent to $36-million and turned a profit last year for the first time since 2002. They also said Payless is only in the early stages of its efforts to rejuvenate the brand and selling more fashionable, high-margin shoes can only help the bottom line.

Goldman Sachs analyst Margaret Mager said in a research note that she expected the company to get profits back to and perhaps above historic peak levels.

"CEO Matt Rubel has identified the appropriate focus areas including improvement in consumer segmentation, merchandise, messaging and the sale experience to drive results and growth," Mager said.

Rubel's move to Payless of Topeka, Kan., last July, replacing the retiring Steven Douglass, was a natural progression for a man credited with turning Nike Inc.'s Cole Haan division from a staid men's luxury shoe brand into a high-profile fashion line.

His background in merchandising and retailing included stints managing such well-known brands as J. Crew, Revlon and Tommy Hilfiger.

Rubel said he was attracted to what he saw as Payless' untapped potential of marrying its ubiquitous presence in shopping centers to shoppers' need for affordable quality.

"Great platform. It had great distribution into the marketplace but wasn't emotionally connecting with the customer in the way I though it could," he said.

Rubel has taken his sense of style to renovate the product mix, sending buyers to Europe to study fashion trends and incorporate that into new designs. He's also introduced a "House of Brands" concept, signing deals with footwear companies like youth-oriented American Eagle and producing the Shaquille O'Neal Dunkman athletic shoe - priced at $40, a fraction of what his old boss Nike charges for its Air Jordans at the Foot Locker across the mall.

He also developed a series of store renovations to help stores emphasize new products and get female shoppers thinking about buying purses to go with their new shoes. The "hot zone" concept will soon expand from 40 to 250 stores.

Most important, Rubel said, he's trying to change perceptions of mass-produced footwear.

"The whole thing is, style and design do not have to be exclusive, they can be inclusive," he said. "So the mission we've made for ourselves is to democratize style and fashion. Make it for everyone."

[Last modified June 15, 2006, 06:25:23]