Payless Shoes – #46

In both of the companies mentioned in this Blog, the Management lesson shows the weakness of planning for downside contingencies, knowing the competition, staying on top of demographic trends, and greed to maximize income without investing back in the business.

Payless Shoes – Topeka KS

In 1956, I was in my senior year at Tuley High School having to prepare a Research Paper on Payless Shoes, and in this first exposure to real business, I first of all learned a life’s lesson – INVENTORY is EVIL – However, Payless seemed to have their demographics and subsequent locations right and their Marketing was headed-up by recent WWII veterans that took the Payless concept and for 50+years sucked out every dollar they could. Then in the last decade the management challenges started in the form of changes in the competition, computer’s managing inventory, little planning to reflect 2500 stores in US and presence in 40 countries-900 stores.

It was a critical time for Payless in that all the management that built the Payless organization was retiring and you can be assured that there was little if any planning for timely replacements. In 2017 Payless declared bankruptcy and submitted a re-organization plan (which was accepted by the courts) yet it was unachievable. They were underprepared for the shift to online retailing and burdened with too much debt and too many stores. The challenges that Millennial management faced made Payless ill-equipped to survive in today’s retail environment.

I am sure that they will try to sell 900 stores located in countries outside of the U.S., and close every store in the Continental U.S.. What happens to the 13,700 that are affected by this bankruptcy? They paid out $9.4 million in outstanding wages to U.S. employees on 3/6/19 . You and I will be contributing to the pensions, but nothing has been mentioned so far on this critical subject. What a shame that the Courts let them out of Bankruptcy the first time! They faced the same issues in 2019 than they did in 2017, they just used unsecured vendors and suppliers money owed (to the tune of $225million), as they spent extensive amounts on advisory fees that benefitted a few large firms in the Topeka KS area.

Every stake holder made out alright, but I still want to point out that there are still going to be 13,700 people out of a job.

TOD’s SpA – Casette D’ete – Italy

In order to not have a single country focus, we turn our eyes towards Italy where we find a business built on the back of chic leather loafers worn by Princess Diana and Hollywood stars. The $1.0 Billion business is run by Diego Della Valle who as the Chairman and majority shareholder (62%) makes and has been making all the calls. Diego has in effect written off all Millennials and is sticking to a 1980’s playbook that uncovers the following strategy: use expensive, high quality leather and mostly classic designs to craft $500 shoes with all the work done in Italy. By now you are seeing that “It Starts and Ends With Management” – as a very revered company in the market segment that they showed their excellence, but that market segment has disappeared as sales slipped for the last 3 years and profits have declined for the last 7 years. Diego’s misread of the Millennial market results in only 15% of Tod’s revenue contribution from this large pool of potential customers, compared with 33% for Louis Vuitton, more than 50% for Gucci and 65% for Saint Laurent.

Diego admits that he now recognizes his recent missteps: The brand was slow to invest in online selling and to adopt marketing tactics such as social-media. Diego says he is addressing these issues, but he also vows to stick with a stance that HAS worked for the Company for ‘the better part of four decades. He continues to insist that he isn’t going to chase Millennials, but recently recognized that knowing the older buyers in that Millennial age segment (23-38) is vital when you want to acquire them at the age of 35 and then keep them. Diego has recently started to deliver NEW products every two months versus twice a year. In the past 18 months Diego has changed large numbers of Managers – who could or would want to work for him – rejiggered logistics, and started initiatives that the competitors have had in place for years. Please let us know your thoughts on Diego’s plan, I am somewhat skeptical that Diego will find another Princess Diana who was his first celebrity customer – and who contributed so much to the success of the company. He needs a real shot of adrenaline in terms of product and sales.

He can attempt to do all those self- centered things, but unless he invests heavily, skips over competitive technologies and manufactures product in a highest quality and lowest overall price environment, he eventually will go bankrupt. How many of my subscribers work in similar situations or know friends who do? It is not an uncommon fact – it is also amazing how many spineless lemmings there are in terms of showing no eventual concern for the Customer, Product, Employees Shareholders and the “Me-Too Owner”.

“Change and Flexibility are One and the Same”