BusinessJuly 13, 2003

John Milburn

TOPEKA, Kan. -- Despite its 5,000 stores across the country, Payless ShoeSource Inc. finds itself in the same difficult position as a multitude of mom-and-pop retailers -- contending with the ever-increasing rivalry of Wal-Mart, Target and other mass merchandisers.

Payless, known for its wide selection and low prices, owns 14 percent of the nation's shoe market, or about one out of every seven pairs sold. But the mass merchandisers are improving their footwear offerings, and they give customers the convenience of picking up shoes while also shopping for groceries, toys, housewares and motor oil. The result is lost business for Topeka-based Payless.

The company has also been struggling with a bloated inventory, the result of poor sales of summer shoes during cold and wet weather. And last month, Moody's Investors Service lowered Payless' credit rating after company officials slashed their second-quarter profit forecast.

John Haugh, Payless' chief marketing officer and senior vice president for business development, said the company is working to solve its problems, and continuing with a campaign started two years ago to position Payless as the place to shop for shoes. The retailer is also improving its merchandise and brightening up its stores.

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Consumers who shop at Payless say they're happy with the prices and quality.

Mryl Roberts, a hospital nurse in Lawrence, wears Payless shoes with her uniform. Every six weeks, she buys three or four new pairs. Recently, she was looking for dress shoes for her 10-year-old daughter, Raegan. Roberts said of Payless shoes, "I think they're cheaper in the long run, and they last better in the long run than Target or Wal-Mart."

But Wal-Mart is a formidable rival. Ken Stone, a professor of economics at Iowa State University who has been tracking Wal-Mart for 20 years, said Payless is experiencing no less than what many independent stores have undergone since Wal-Mart came to their towns.

"Wal-Mart is so big now and they have tremendous buying power and they don't hesitate to use it," Stone said. "They are infamous for squeezing vendors down to the last penny."

To survive amid the growing pressure from stores like Wal-Mart, Target and Kohl's, retailers must find their own market niche, Stone said. Payless believes its niche is fashionable shoes for the family at a good price.

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