Payless recently announced the liquidation of its remaining 2,000+ U.S. stores. While the retailer is ranked 17 in terms of total U.S. footwear dollar sales, representing only about 2 percent of the market volume, it is the number six player based on unit sales, accounting for almost 4 percent of the pairs sold in 2018. Therefore, it is worthwhile to make some educated predictions as to where this business will go once Payless doors are closed.
The obvious answer based on price-point alone is that major mass merchants, such as Walmart and Target, will pick up the bulk of the business. Payless’s average retail price per pair sold is approximately $17, squarely in between that of these two retailers. But there are other key data points that suggest that these two have the most to gain, so they should be aggressive in trying to capitalize.
According to NPD’s Checkout, almost half of Payless footwear in-store buyers also bought footwear at Walmart in 2018. Twenty percent also bought from Target, and coming in third was Kohl’s, though Kohl’s average price per pair is approximately double that of Payless.
Less than 10 percent of Payless unit and dollar sales are done online, well below the industry average of 29 percent – a point that has been acknowledged as one of the reasons for the retailer’s challenges. Both Walmart and Target’s footwear businesses also skew heavily in-store, as they’ve got other businesses currently propelling them forward in today’s digital age.
However, there are also some differences between Payless and Walmart that may offer opportunity for the latter to attract new consumers. 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. Half of Payless sales come from the fashion category, compared to Walmart’s 40 percent. Women’s footwear represents 60 percent of Payless sales, and only 30 percent of Walmart’s.
Based on what we have seen happen in the sports business with The Sports Authority, and more recently in toys after Toys “R” Us went out of business, we can expect most of the sales to be picked up by other retailers, while some will simply vanish, in part due to the loss of impulse purchases and those driven by targeted advertising or promotions (Payless has historically been well known for its BOGO events). However, Payless under-indexes the market in terms of pairs bought on impulse, making it more of a destination for specific footwear purchases. This suggests that most sales will be picked up by others and less will disappear. And, because Payless has been so reliant on in-store sales, the proximity of other retailers’ physical locations to the shuttered Payless doors will be a key factor in determining where the sales will go.
After the going out of business sales are over, it’s clear that the most likely beneficiaries of Payless’s demise will be Walmart and, to a lesser extent, Target. But Kohl’s should also take note of the high cross-purchasing percent to determine what is in it for them. Retailers should focus not only on their customer base’s similarities to Payless, but also the differences, which should be treated as an opportunity to engage a new consumer group that has been displaced.
Source: The NPD Group/ Consumer Tracking Service/ 12 months ending December 2018