New Payless succeeding with a mix of higher quality and slick new image

TOPEKA, KAN. —A few years ago, fashion-forward consumers wouldn’t step foot inside a Payless store. Today, the Payless ShoeSource on Fifth Avenue in New York raises a surprised eyebrow with its merchandise selection and new image.

Spearheaded by Matt Rubel, ceo and president of Collective Brands Inc., the largest non-athletic footwear company underwent a transformation for the books. In June 2005, Rubel left Cole Haan to revamp a fading Payless. He started with completely remodeling the drab, warehouse-like spaces into Fashion Lab and Hot Zone formats that could be easily mistaken for decor in a specialty store. In addition, Payless ShoeSource Fashion Lab stores have expanded accessories areas showcasing fresh merchandise, like necklaces and belts, to better complement the footwear selection.

“We’re finding good success with fashion jewelry and our sunglasses styles,” Rubel said in an exclusive interview with Retailing Today. “We see that this will grow faster than footwear, at approximately double.”

Although sleek merchandising makes for good eye candy, a strong brand presence is key to driving sales. By executing the House of Brands business strategy, Payless developed the ability to offer footwear to a customer who appreciates variety. Brands like Airwalk, American Eagle, Champion, Dexter, Disney, Shaquille O’Neal-endorsed Dunkman, ABT for Spotlights and designer collections—Abaete for Payless, Lela Rose for Payless and alice + olivia for Payless—weigh in heavily in the turnaround.

“By adding quality to innovation, we’ve added in a layer, as opposed to taking away our basics,” said Rubel. “[Think of it as] us going from a one-layer cake to a three-layer cake.”

To keep value high and price points low, Payless invested in a New York City design studio headed by Robert Mingione, previously of Kenneth Cole, and Bernard Figueroa, a Michael Kors alumnus, overseeing women’s design. Each footwear category receives special attention to ensure that only trend-right shoes line the shelves. The Payless of yesteryear would look to department stores and end up with lagging fashions. Now, the design team is interpreting trends right as they hit, then quickly delivering fashion and quality at great price points.

More importantly, Rubel’s vision includes a mission to “democratize design.” “Democratization of fashion and design is really bringing the greatest style and greatest quality and innovation to the customer,” said Rubel. “[Bringing] it down through access point, through price and location makes it more accessible to everyone.”

On a larger platform, the retailer aims to reach consumers in every mall and in every neighborhood. Payless hopes that its customers don’t need to drive more than four miles to a store, and with Puerto Rico and Canada under its belt, the retailer will be expanding into the Columbian market this fall. “Great design can no longer be an elitist thing,” added Rubel.

Driven by the addition of Stride Rite, the third quarter 2007 total sales results for Collective Brands were up 18.1% to $830.7 million. Total sales for Payless were $685.9 million, slightly less than company sales for the third quarter 2004, which totaled $687.3 million.

“Its really is all about the customer,” said Rubel. “Creating a great shopping experience for the consumer and making sure that we speak to a broader party by creating a House of Brands and [that] we have the greatest value and the greatest prices.”