okay I want you to close your eyes for a second
let's let's go to a party all right I'm with
you it's late 2018 we're in Santa Monica California
the weather is you know perfect obviously of
course it's Santa Monica and we are at a former
Armani boutique now that alone tells you something
about the real estate right mm -hmm Prime location,
expensive vibe from the jump. Exactly. And it's
the grand opening for a brand new, very exclusive
luxury designer. His name is Bruno Palessi. Palessi.
Okay, sounds Italian. Sounds fancy. It's all
incredibly immaculate. We're talking gold mannequins,
you know, angel statues, trays of champagne making
the rounds every 30 seconds. The whole nine yards.
The whole nine yards. And the guests. These are
the people who are supposed to dictate taste.
Influencers, fashionistas, that whole L .A. crowd.
The people who claim they can spot the difference
between Gucci and Prada from 50 paces away. Right.
Or at least they project that they can. And they
are trying on these shoes, these pumps, these
really sleek heels. They're strutting up and
down this little faux runway they've set up.
And they are, I mean, they're losing their minds.
They're eyeing it. They are completely buying
it. You have footage of them telling the cameras
the stitching is exquisite. And, oh, I'd pay
$400, maybe $500 for these. Wow. They are buying
the story. They are buying the whole Plessy vibe.
Yeah. There's this one woman, she's holding up
a sneaker, and she says, it's just so elegant
and sophisticated. A sneaker! And then comes
the big moment. The prestige, as they say in
magic. Yeah. They go to ring up the sales. And
the prestige is just a hammer blow. The sales
team waits until they're at the register, credit
card in hand, and says, actually, these aren't
$600 shoes. They're... They're $20 shoes. Oh,
the reveal. And this isn't Pellessi. It's Payless.
The famous Pellessi experiment. I mean, it is
probably the single most effective, most brutal
piece of gotcha marketing from the last 20 years.
It was incredible. It just completely exposed
the psychology of brand perception versus. actual
product value. It was so brutal. You can see
the color literally drain from their faces in
the video. But it raises this question that I've
just been obsessing over while reading through
all these documents. If the product was good
enough to fool a so -called fashionista, why
was the brand itself failing so badly? Because
at the exact moment they were pulling this brilliant
prank, the actual company was, you know, circling
the drain. And that is the central tension of
this whole story we're covering today. It's so
easy to laugh at the influencers, right? Oh,
yeah. But the stunt revealed this massive, massive
disconnect. The shoes, they were fine. The brand,
however, was toxic. So today we're doing a deep
dive into Payless Shoe Source. And I know what
you're probably thinking right now, looking at
your phone like, Payless, really? The place that
smelled like rubber and where my mom dragged
me to buy Velcro sneakers before school started.
Yes, that place. But if you look at this research
deck we have here today, Payless isn't just a
story about cheap shoes. It's really a masterclass
in the entire history of modern American retail.
It really is. It covers everything. Everything.
The invention of self -service shopping, the
rise of the massive corporate conglomerate, the
absolute devastation caused by private equity
and these leveraged buyouts. And then this bizarre
zombie phase, which we have to get into, where
the company completely dies in America, but somehow
keeps on living in like. the Philippines and
Latin America. It's a truly wild ride. It is.
We go from this small family business in Kansas
to a multi -billion dollar disaster involving
some of the biggest banks in the world. So yeah,
let's get into it. Let's dive in. Okay, so to
really understand how big this thing got and
just how far it fell, we have to rewind way back.
We're going to Topeka, Kansas. The year is 1956.
A very specific moment in the American economy.
The post -war boom is in full swing. Consumption,
you know, it's the engine of the entire country.
And we meet these two cousins, Louis and Chelle
Pozes. They have a company. Originally, it's
called Payless National. And they have a problem.
Or maybe more accurately, they see a problem
with how everybody else is selling shoes. Yeah,
they saw an inefficiency in the market. Paint
that picture for us. What was the status quo
of shoe shopping in the mid -50s? Because I think
we really take for granted how we shop now. Oh,
we absolutely do. If you walked into a shoe store
in, say, 1955, it was what you'd call a gatekeeper
experience. A gatekeeper experience, okay. You
walked in, you sat on a stool, and a salesman,
and it was almost always a man in a suit, would
come over and measure your foot. with that metal
brannock device right i remember those from when
i was a kid you didn't browse you couldn't just
wander the aisles and pick things up all the
shoes were hidden away in the back room in the
stock room so i couldn't just look around i'd
have to what ask the guy i'm looking for a brown
loafer and he just decides what he thinks i should
see precisely it was a very high touch model
but it was also incredibly high friction And
from a business standpoint, it was really expensive.
You needed a ton of staff. And they had to be
trained, right? They had to be trained. A single
transaction could take 30, 40 minutes because
this one salesman is running back and forth,
back and forth to the stockroom trying to find
your size. Which means high labor costs. And
high labor costs mean high prices. You're not
just paying for the leather, you're paying for
that guy's time. Exactly. So the Pozes cousins,
they look at this model and then they look over
at what's happening in grocery stores. Right.
Supermarkets like Piggly Wiggly had already,
you know, completely revolutionized food shopping
by just letting people pick their own cans off
the shelf. And the cousins think, why can't we
do that with shoes? It seems so completely obvious
now. Just put the shoes on the floor. But it
was a radical disruption at the time. They moved
the entire inventory from the back room out onto
the sales floor. All the boxes. All the boxes.
And they organized it by size, not by style,
which is key. Ah, so you go to the size 8 aisle
and all the size 8s are there. All of them. Yeah.
This did two things immediately. One, it empowered
the customer. You could try on 10 pairs in 10
minutes without feeling guilty or having to wait
for the clerk to come back. Right. But two. and
this is the absolute key to their entire fortune,
it completely decimated their labor costs. They
didn't need the army of salesmen in suits anymore.
They needed a cashier. That's pretty much it.
And by stripping out that whole service layer,
they could lower their price point aggressively.
Hence the name, Payless. Hence the name. And
the growth. I'm looking at the numbers in our
documents here, and it was just explosive. They
went from three stores to 103 stores between
1956 and 1971. That's just... That's viral growth
for a brick and mortar business in a pre -Internet
era. It's almost unheard of. And they didn't
just build them all from scratch, right? They
were acquiring other companies. They did it through
acquisition, too. Yeah. They bought the Hill
Brothers Shoe Company in Kansas City, then another
chain with the same name, confusingly, in St.
Louis. And... The documents, they mention the
aesthetic of these early stores. They call it,
what is it, bare bones minimalism? Bare bones
minimalism, which is, you know, a very polite
business school way of saying it looked cheap.
It looked really cheap. It was industrial. We're
talking fluorescent tube lighting, metal racks,
no carpets, concrete floors. But you have to
understand the psychology of the bargain hunter.
If the store looks too nice, like that fake Polessi
store we were talking about. the customer instinctively
assumes they're paying for the chandelier. Right.
My money is going to this fancy decor. Exactly.
But when you walk into a store with bare bones
minimalism, the environment itself signals value.
It tells you we aren't wasting a dime of your
money on decor. It's all going into the low price.
That is a fantastic point. The ugliness is a
feature, not a bug. It actually builds trust
that the price you're seeing is the absolute
bottom dollar. It absolutely does. Speaking of
price, we have to talk about the slogan from
this early era. It's a classic. Two for five
men alive. A classic. Two for five man alive.
I love it. And it referred to the fact that women's
and children's shoes were literally selling for
two pairs for five dollars. Two pairs for five
dollars. I mean, even adjusting for inflation,
that is aggressively, aggressively cheap. How
were they possibly making money? Was the quality
just abysmal? The quality was functional. Let's
call it functional. But the margin came from
pure, unadulterated volume. By selling thousands
and thousands of units with minimal overhead,
they could scrape a tiny profit off every single
sale. It was a numbers game. And it worked. By
1972, they consolidated all these different chains,
Hill Brothers, Payless National, under that single
banner that we all know, Payless Shoe Source.
They had cracked the code on volume retailing
for footwear. They really had. They owned that
space. So the 70s, that's the era of consolidation.
But the 80s and 90s... This is where Payless
becomes like a part of the cultural furniture
in America. And it starts with a big corporate
shift. In 1979, they get acquired by the May
Department Stores Company. And this is really
important context. The late 70s and early 80s
was the era of the conglomerate. Department stores
were trying to own the entire retail ecosystem
from high end to low end. So being owned by May
gave Payless, what, just a ton of cash? Access
to massive capital. It allowed them to scale
from being a strong regional player to a true
national behemoth. They weren't just a Kansas
company anymore. They were a corporate asset,
a division of a giant. But they do eventually
spin off again, right, in 1996 to become independent.
They do. They become Payless, ShoeSource, Ankh,
and go public. But before we get too deep in
the finance stuff, we have to talk about the
product. Because if you were a kid in the 80s
or 90s, Payless wasn't about stock prices or
corporate acquisitions. It was about one thing.
Pro Wings. Ah, yes. Pro Wings. The shoes that
launched a thousand playground taunts. I feel
like we need to have a moment of silence for
every single person who had to wear these to
gym class. The source material highlights them
specifically. What was the deal with Pro Wings?
They were the quintessential store brand answer
to Nike and Reebok. Yeah. But they had this distinct
design feature that became... A bit of a scarlet
letter for kids. The Velcro. The Velcro strap.
The two or three straps, yeah. Instead of laces.
Often, yes. And look, from a parent's perspective,
pro wings were a godsend. They were actually
pretty durable, they were incredibly cheap, and
you didn't have to tie them. If you have three
kids and you're trying to get them out the door
for school in the morning, Velcro is a technology
that saves your sanity. Okay, from a practical
standpoint, sure. But in the brutal social hierarchy
of an American middle school cafeteria, they
were a signal. A huge signal. They signaled that
your parents were not buying you the $100 Air
Jordans. Exactly. And that cool gap is something
that Payless struggled with for its entire existence.
They were ubiquitous. By the 90s, they were in
every town. But they had absolutely no cultural
cachet. They were the place you had to go, not
the place you wanted to go. Nike was selling
an aspiration. They were selling performance,
even though most kids weren't professional athletes.
Payless was selling utility. And utility is rarely
cool. But business -wise, I mean, they were printing
money. In the 90s, they went on another buying
spree. They bought a chain called Pickway Shoes,
then another one called Parade of Shoes. It feels
like they were trying to just completely corner
the market on low to mid -tier retail. They were.
And they were also trying to diversify their
sales channels. Buying Parade of Shoes in 1997
got them into department stores like Shopko.
They were trying to saturate every possible place
a person could buy an affordable shoe. But this
is where we see the first cracks appearing in
the facade, because in 2004, they have a major
restructuring. Right. They announced they're
closing the entire parade chain and another 100
payless outlets on top of that. So even in what
we think of as the good times, before the Internet
really took over, they were pruning. It seems
like that model of expansion at all costs has
a natural limit. Eventually, you just have too
many stores selling the same cheap shoes, sometimes
on the same block. That's the danger of retail
saturation. When you're on every single corner,
you start cannibalizing your own sales. Your
new store just steals customers from your old
store. Exactly. But that restructuring in 2004.
It seems like it leads us into what I would call
the identity crisis era or maybe the ambition
era. This is when Payless decides they don't
want to be the pro -wings store anymore. They
want to be a titan. They want respect. This is,
without a doubt, the most ambitious pivot in
the company's entire history. And it all centers
on the year 2007. In 2007, they acquired the
Stride Right Corporation. Which was a massive,
massive deal. Stride Right wasn't just, you know,
baby shoes and kid shoes. They owned a portfolio
of legitimate, high equity heritage. brands.
So all of a sudden, the company that sells $10
Velcro sneakers now also owns Sperry Top Sider.
Scary. The Bo shoe, the icon of preppy culture.
I remember in like 2010, 2011, you couldn't walk
across a college campus in America without seeing
a pair of Sperrys. They were the absolute uniform
of the preppy revival. And Payless, the home
of pro wings, owned them. They also got Keds.
Keds, the classic canvas sneaker. And Saucony,
which is a... Very serious, respected running
shoe brand. So they rebrand the whole company.
They stop being Payless Shoe Source, Inc., and
they become Collective Brands, Inc. It's a huge
strategy shift. They're telling the market, we
are not just a retailer anymore. We are a brand
house. Right. It's a difference between being
a grocery store like Kroger and being the manufacturer
like Procter & Gamble. Exactly. They wanted to
own the intellectual property. Because if you
own the brand, You capture the margin at every
single step of the process. You can sell Sperry's
wholesale to Macy's and you make money. You can
sell Sperry's in your own Payless stores and
you make money. It's vertical integration. And
they didn't stop there. They also had this other
division called Collective Licensing International,
or CLI. And this part, to me, is fascinating
because it seems like they were literally trying
to buy cool. That's exactly what they were trying
to do. They were trying to capture the youth
lifestyle market. The source material lists a
bunch of brands they acquired. Brands like Airwalk.
Airwalk. Which was huge in the 90s skate scene.
I remember begging my parents for a pair of Airwalks.
They were the shoe to have. They were. And Payless
also owned Vision Streetwear, Sims, Lamar. These
were all course skate and snowboard brands. So
what was the strategy there? Buy these cool,
slightly faded brands and do what with them?
The strategy was we will take these cool skate
brands and we will mass produce them and sell
them at a mass market price point in our thousands
of Payless stores. They were trying to verticalize
cool, take the credibility from the skate park
and sell it in strip mall. Precisely. They wanted
to own and control the entire cultural narrative,
from the high -end boat shoe crowd to the action
sports kids. On paper, it actually sounds kind
of smart. You've got the high -end stuff like
Sperry selling in department stores, generating
cash, and then you have the cool stuff like Airwalk
driving new, younger traffic into your discount
stores. It was a bold vision. For a moment there,
they were on top of the world. The stock is up.
They have thousands of stores. They own this
incredible portfolio of brands. They're a multi
-billion dollar empire. But. We all know how
this movie ends. The sharks begin to circle.
And by sharks, you mean private equity. Indeed.
Okay. This is the part of the story where we
need to slow down and really explain the mechanics.
Because the source says that in 2012, the company
was bought out for $1 .32 billion by a group.
Right. That group included Wolverine Worldwide,
Bloom Capital, and Golden Gate Capital. And then
it says the company became heavily loaded with
debt. This is the turning point. This is the
precise moment where Payless stops being a retailer
and it starts being a financial instrument. Okay,
so walk me through it. What actually happened
in that deal room in 2012? So it wasn't a straight
purchase. It was a partition, a breakup. Wolverine
Worldwide, they're a major shoe manufacturer
themselves. They own brands like Merrill and
Hush Puppies. They wanted the crown jewels. They
looked at Collective Brands' portfolio and said,
we want Sperry, Keds, and Saucony. The good stuff.
So the most profitable, highest status brands
get carved off and leave the building. Wolverine
takes them and runs. Right. Now, what was left?
You had the 4000 plus Payless retail stores,
which were, you know, lower margin. And you had
the collective licensing stuff like Airwalk.
OK. That rump company was taken by the two private
equity firms, Golden Gate and Blum Capital. Yeah.
And they formed a new private entity called Payless
Holdings. And this is a leveraged buyout, an
LBO. A classic textbook LBO. Here's the simplified
version, and it's really important to understand.
Imagine you want to buy a house that costs a
million dollars. Okay. But you only have $100
,000 in cash. So you go to a bank and you borrow
the other $900 ,000 to complete the purchase.
Standard stuff so far. Right, a mortgage. But
here's the trick, and this is the part that always
blows people's minds. With an LBO, you don't
take out the mortgage in your name. You structure
the deal so that the mortgage is put on the house
itself. Wait, what? So the house is suddenly
responsible for paying its own mortgage? Exactly.
The company being bought, in this case Payless,
is forced to take on all the debt that was used
to buy it. So Payless, the company, now has hundreds
and hundreds of millions of dollars in new debt
on its balance sheet that wasn't there the day
before. The private equity firms own it, but
the company itself has to service the massive
loan. That just seems, I mean, that seems incredibly
reckless. You just stripped away its best, most
high margin brands like Sperry, so its income
is less diverse. And then you've saddled the
remaining discount stores with a massive mortgage
they never asked for. It is unbelievably risky.
The entire model requires the company to generate
consistent, high and predictable cash flow just
to pay the interest on that debt. If business
slows down even a little bit. You are in very
deep trouble. And remember the timing. This is
2012. What is happening in the background of
all of this? The inexorable rise of Amazon. Amazon.
E -commerce is exploding. Foot traffic in malls
is just beginning to dip. It's the worst possible
timing. So you have a company that now needs
perfect performance just to stay afloat and pay
off its new debt. And it's entering an environment
where retail performance is getting harder and
harder every single day. It's a pressure cooker.
And the source mentions that eventually Moody's
downgrades their credit rating. They had, I think,
$100 million in loans that were coming due. And
they just couldn't pay. This is the debt trap.
When you have that much leverage, that much debt
to service. You can't invest in the business.
You can't upgrade your stores. You can't build
a better website. You can't fix the ugly fluorescent
lighting or the smelly carpets we talked about.
Because every spare dollar is going to the bank.
Every single spare dollar goes to the bank to
pay interest. So the stores get worse, which
means sales drop further, which means the debt
gets even harder to pay. It's a death spiral.
It honestly sounds like they were being hollowed
out from the inside. They were. From a financial
perspective, they were being strip -mined for
cash flow until there was absolutely nothing
left. So the bomb finally goes off in April 2017.
Bankruptcy number one. Chapter 11. Now, it's
important to make a distinction here. Chapter
11 is a reorganization. It's not a final death
sentence. It's basically asking the court for
a timeout to restructure your debts and try to
fix the business. An attempt to save the patient.
Exactly. But as part of that, they immediately
closed 673 stores. That is a lot of real estate
to go dark. All at once. Imagine walking through
your local mall and suddenly seeing three or
four big empty storefronts in a row. It's a massive
contraction. But interestingly, they moved through
this first bankruptcy process very, very quickly.
They officially emerged from bankruptcy in August
of 2017, just a few months later. And the source
material notes they were actually the first among
a whole group of troubled retailers to successfully
restructure in that big wave of retail bankruptcies.
They were. So for a minute there, it must have
looked like they made it. They had survived.
They trimmed the fat. They shed some of the crippling
debt. And the management team came out and said,
OK, we're lean. We're mean. We survived the retail
apocalypse. It definitely looked like it from
the outside. But in finance, there's a term for
this. We often call it a dead cat bounce. That's
a brutal term. It is, but it fits perfectly.
It means a temporary, brief recovery and an asset
that is, for all intents and purposes, dying.
Because they hadn't fixed the core problem. Which
was what? They were still a boring shoe store
in a dying mall, and they still had a lot of
debt. They just had less debt than before. They
basically bought themselves another 18 months
of runway, but the plane was still crashing.
And that runway ran out very, very fast. Less
than two years later, February 2019. The death
blow. Bankruptcy number two. And this was not
a let's close a few underperforming stores kind
of bankruptcy. This was a turn out the lights.
The party's over liquidation. It was a complete
liquidation of the entire North American footprint.
And the scale is just staggering to comprehend.
They announced the closure of all twenty one
hundred stores in the United States. Two thousand
one hundred store. I mean, that is everywhere.
Every mall, every strip center, every downtown
gone. And almost immediately after that announcement
on February. They announced they would also be
closing all 248 of their stores in Canada, too.
Wow. They also shut down their e -commerce platform
in North America. For all intents and purposes,
Payless ceased to exist as a retailer in its
home continent. I want to dig into the why here
a little bit more. We've talked about the debt
load. We've mentioned the Internet. But the source
quotes a marketing professor from Texas A &M,
Cheryl H. Bridges. And she had a really sharp
insight. She did. She noted that Payless had
failed to reinvent its stores quickly enough
for an increasingly crowded market. Which brings
us right back around to Pellessi, doesn't it?
It brings us full circle. The Pellessi stunt
proved that the product wasn't necessarily the
core problem. People like the shoes if you put
them in a different context, if you made them
feel cool. Right. The problem was the store,
the experience, all of that brand baggage. Right.
Walking into a Payless in 2018 felt exactly like
walking into a Payless in 1998, but just sadder.
The carpets were worn out. The lighting was that
awful humming fluorescent kind. It just felt
like a place where dreams went to die. It did.
And in a crowded market where you could buy cheap
shoes on Amazon without ever leaving your couch,
or you could go to Target where the experience
is bright and clean and you can buy groceries
at the same time. Why would you ever go to Payless?
They didn't have an answer to that question.
They offered no compelling experience. They had
completely failed to update that bare -bones
minimalism of the 1960s for a 2010s audience
that expected more. So they were stuck. Stuck
in the middle. Not cool enough to be a destination.
Not convenient enough to beat Amazon. And all
the while, weighed down by so much debt that
they couldn't afford to fix any of it. It's really
a retail tragedy. It is, but. And here's where
the story gets really, really weird. Payless
didn't actually die. Right. This is the huge
plot twist I was promising. If this were a movie,
the screen would fade to black right there. You'd
see a title card. Payless, 1956 -2019. Roll credits.
But looking at these documents, there is this
massive glaring anomaly. While every store in
the US and Canada was putting up everything must
go signs, there were hundreds of Payless stores
around the world that were just... business as
usual. It's this fascinating split reality. The
bankruptcy filings that were made in the US explicitly
excluded any stores operating outside of North
America. The international operations were legally
and financially insulated from the American collapse.
So we have this zombie brand situation. The body
is dead in America, but the brand is still walking
around elsewhere. So where was Payless actually
surviving? It's a global tour. Let's start in
Asia. Specifically the Philippines. In 2019,
while U .S. stores were being liquidated, the
Philippines had 76 active and profitable Payless
stores. 76. That is a massive footprint for a
single country that size. It's huge. And Indonesia
had 73 stores. They had launched there back in
2011, and it was a big success. Okay, so a strong
presence in Southeast Asia. What about elsewhere?
The Caribbean. Payless is an absolute giant in
the Caribbean. I was looking at the list in our
source material, and it's just extensive. St.
Lucia, Antigua, Grenada, St. Kitts, Dominica,
St. Vincent. Barbados as well. They opened their
first store in Barbados in 2012 and grew to five
locations in Trinidad and Tobago. They have 23
stores. 23 stores in Trinidad and Tobago alone.
That is incredible density. Why did the brand
work so well there when it was failing so spectacularly
in Topeka? It's a combination of a few key factors.
First, the competitive landscape is completely
different. Amazon is a global juggernaut, of
course. But last mile delivery in many developing
markets is much harder and more expensive than
it is in the U .S. Right. You can't just get
prime delivery in two hours in every corner of
Indonesia or on a small Caribbean island. So
the inherent convenience of a physical store
is still very, very real. That makes perfect
sense. The physical store is actually solving
a logistics problem for the customer. Second,
mall culture is different. In places like the
Philippines or the UAE, the mall is still the
absolute center of social life. It's where you
go for air conditioning, for food, for entertainment,
for community. Foot traffic hasn't fallen off
a cliff there like it did in the American Midwest.
OK, so market conditions are different. But was
there a structural difference in how the company
itself was run internationally? A huge difference.
And this is probably the most crucial piece of
the puzzle. The franchise model. Ah, like a McDonald's
or a Subway? Exactly like a McDonald's. In the
U .S., Payless owned and operated most of its
stores. That meant they paid the rent, the staff
salaries, the electric bill. All the risk was
on them. But internationally, many of the operations
were partnerships or franchises with large local
retail operators. So they found a local expert
to run things. Yes. For example, in the UAE and
other parts of the Middle East, the brand is
operated by the Alshaya Group. They're a massive,
sophisticated retail operator who runs dozens
of Western brands there. In Thailand, it's the
Central Marketing Group. These are local giants
who know their specific markets inside and out.
So Alshaya pays Payless a licensing fee to use
the name and the branding, but Alshaya takes
on all the risk of actually running the stores.
Correct. If the store in the Dubai mall has a
bad month, Alshaya takes the financial hit, not
the Payless corporate entity back in America.
It's a much safer, higher margin way to exist.
So internationally, Payless basically became
an intellectual property company. They were selling
the idea of Payless to people who really knew
how to run stores in their home country. That
is brilliant. It insulates the mothership from
all the local risks like rent and payroll. But
there was one exception, though, wasn't there?
One place where the international strategy failed
pretty badly. Australia. Right. The land down
under. This is a really interesting sidebar to
the story. In 2013, the U .S. Payless bought
the Australian Payless shoes chain, which. just
to make things confusing, had been operating
completely independently in Australia since 1980
with no affiliation to the U .S. company. Wait,
wait. So there was a totally different, unrelated
company called Payless Shoes in Australia for
30 years. Yes. The name is generic enough that
multiple people came up with it. So the U .S.
Payless bought them out, planning to unify the
brand globally and run the Australian stores
themselves. And it didn't work. It was a disaster.
They tried to run it directly, but the exact
same issues that were plaguing the U .S. market
high rents online competition hit them there
just as hard. By December of 2016, they closed
all 150 stores in Australia and cut 730 jobs.
So in a way, Australia was a canary in the coal
mine for the U .S. collapse that would come a
few years later. OK, so Australia is out, the
U .S. is out, Canada is out. But Latin America,
Asia and the Caribbean are keeping the heartbeat
of the brand going. Which brings us to the final
improbable act of our story. The resurrection.
Because in the world of modern corporate finance,
nothing ever truly stays dead if there's even
a little bit of brand equity left to squeeze
out of it. It's January 2020. The world is, you
know, about to change for a lot of other reasons,
obviously. But in the business world, Payless
officially emerges from its second bankruptcy.
They have new owners now. It's a group of investors
led by two firms, Alding Global Capital and Axar
Capital Management. And they have a plan to bring
the Payless brand back to the United States.
And the very first thing they did was a subtle
but important rebrand. On August 18, 2020, they
officially dropped Shoesource from the name.
Just Payless. It's cleaner, more modern. It's
like Cher or Madonna. One word is all you need.
And they moved the headquarters. This is a big
symbolic move. Goodbye, Topeka, Kansas, the home
of the Pozes cousins and the company since 1956.
And hello, Edgewater, Florida, which is basically
a suburb of Miami. Which makes total and complete
sense given everything we just discussed. If
your only surviving profitable business is in
Latin America and the Caribbean, why would your
C -suite be in Kansas? Miami is the logistical
and cultural gateway to your actual market. Exactly.
It's a clear symbolic shift away from the American
heartland and toward a global international hub.
And the strategy shifted, too. Right. They relaunched
the U .S. e -commerce site. Finally, a digital
first approach. But they also announced plans
to open physical stores in the U .S. again. They
did. But not the same old stores, right? They
aren't just going to go back into all those dying
malls they just left. Correct. The plan they
announced was to open between 300 and 500 freestanding
stores over the next five years. And freestanding
is the crucial distinction there. It's everything.
They are moving away from the mall dependency
that killed them in 2017 and 2019. They want
standalone locations on busy roads where they
can control the rent, the parking, and the entire
customer experience from the curb to the cash
register. It is so ambitious trying to reopen
hundreds of stores right after you just liquidated
thousands. It is a very bold bet that there is
still some love left for that brand among American
consumers. Or at the very least, a real need
for that price point. Inflation is real. People
still need affordable shoes for their kids. The
core innovation of 1956, self -service, low cost,
is still a completely valid business model. So
the question is whether they can execute it now
without all the baggage of the past. without
the decrepit stores. Can they start fresh? So
here we are. Payless is back, sort of. They're
online. They're slowly opening new stores. Their
headquarters is in Miami. And there's still a
huge deal in the Philippines and Trinidad. It's
just a wild, wild journey. It really is. I mean,
you go from the Pozes cousins having this brilliant
idea to invent self -service shoes in Kansas.
To the pro -wings era, to the massive collective
brands empire. Then the private equity strip
mining, the total collapse in its home country,
and now this weird digital hybrid resurrection.
It's the whole life cycle of modern American
capitalism in one company. It makes you think
about that Polessi stunt again, doesn't it? Polessi
was a joke, but it showed that people want to
believe in quality. They want to buy into a story.
Payless spent, what, 60 years being the cheap
option? Can they actually rebrand themselves?
as the smart option. That is the multimillion
dollar question, isn't it? Can a legacy retailer
truly reinvent itself after liquidating its entire
home base? It is incredibly rare. Usually when
a chain like Circuit City or Borders liquidates,
it's gone forever. Right. Maybe the IP gets bought
by some online only company. But to try and actually
rebuild the physical footprint, that is a very,
very steep hill to climb. But hey. Everyone loves
a comeback story. And let's be honest, everyone
still loves a good deal. Maybe there is a future
where Payless is, I don't know, kind of cool
again. Or maybe Pellessi was the only glimpse
of cool we'll ever get from them. It does raise
a really provocative thought, though, about the
cyclical nature of retail and corporate finance.
We often think of bankruptcy as the end, as the
tombstone for a company. The final chapter. But
in modern corporate finance, Chapter 11 bankruptcy
is often just a tool. It's a car wash. You go
in dirty, covered in debt, and bad real estate
leases, and you come out the other side smaller,
cleaner, and ready to try again. That is a great
point, but it's also a slightly terrifying one
for all the employees and the landlords and the
creditors who get completely washed away in that
process. It's the brutal efficiency of the market.
The brand survives, even if the people and the
original stores don't. And for you, the listener,
the next time you see a grand opening sign for
a brand you thought was dead or you click on
an ad for a nostalgic brand online, maybe ask
yourself, are you buying the actual shoes or
are you just buying the memory of what that brand
is? used to be and maybe more importantly does
the company behind that logo today even look
anything like the one you remember check your
labels and check the balance sheet that wraps
up our depth dive into the rise the fall and
very strange return of Payless from Topeka to
Trinidad it's been a heck of a walk thanks for
listening we'll see you on the next one keep
questioning the price tag