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The Payless ShoeSource Bankruptcy and What It Tells Us

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Payless ShoeSource filed for Chapter 11 bankruptcy on April 4. The retailer announced that it would be closing 400 under-performing locations, and would be making other changes to stem a growing tide of red ink.

Specifically, the company explained in a news release, the shoe seller would “work to aggressively manage the remaining real-estate lease portfolio, either by modifying [leasing] terms or evaluating closures of additional locations.”

The Reasons Retailers Struggle

Many traditional retailers have been struggling for some time, to widely varying degrees. One key culprit, of course, is e-commerce, as increasing numbers of customers have come to prefer the convenience of online shopping to crowded malls and long checkout lines. Even Payless has experienced a sizable increase of online shopping in recent years.

However, many of the causes of the financial woes of retailers in general and of Payless in particular are hidden in the background, and have nothing to do with the surge in online buying. For instance, in recent years, Payless says, the company has been using what have turned out to be flawed ordering methods that have caused purchasers to acquire too much inventory.

In another example, in the Spring of 2015, not only was excess inventory ordered, but it arrived after the high-purchase-volume Easter period had already ended, stemming largely from a West Coast port-labor strike that had caused major transportation interruptions. As a result, by the time the spring-shoe shipments finally arrived at stores, the shoes had to be immediately marked down due to the approach of summer, cutting deeply into the company’s profits for the spring season.

Solutions Needed

Clearly, Payless and other retailers like it desperately need improved tools for forecasting demand, matching supply to demand needs, and dealing with unexpected supply-chain interruptions. Some of these tools will be the subjects of postings in the coming weeks and months.

Stay tuned.