With the final collapse of Payless Shoes in February 2019, I figured I better record a bit of their history as I know it.
In my 5 years at May Department Stores’ corporate headquarters in St. Louis from 1977 to 1981, I evolved to become the “strategic planning” guy, which meant i looked at acquisition candidates.
May’s CEO, David C. Farrell, had started work as a teen in his hometown store, Kaufmann’s of Pittsburgh, under the Antioch College work-study program, and risen to run Kaufmann’s by the time he was about 40. That store was our most prestigious division, dominating the market, the closest thing we had to competitor Federated Department Stores’ newsmaking Bloomingdale’s. In his 40s he was made President, then CEO of May, which job he held for I think 18 years…..18 years of increased sales and profits. He worked more hours than anyone i ever met. When he got a corporate jet, they had to have 2 crews because he worked longer hours than the pilots were allowed to.
May had bought its last 2 department store operations, G. Fox of Hartford and Meier & Frank of Portland, in the mid-1960s. Then the Federal Trade Commission forced Federated, May, and other big department store groups to sign consent decrees that prohibited them from buying other department stores, usually for at least ten years. This drove them all to look at discount stores, grocery stores, and specialty retailers. All the department store companies tried discount stores….May’s were called Venture, created by the same man who created Target for Dayton-Hudson, John Geisse. But well-run specialty chains were at least as attractive, as they made good profits and sold the same categories of merchandise that the department stores knew well.
So between roughly 1977 and 1980, i looked at about 400 companies for Mr. Farrell. I was in a unique position because i had been a buyer (“merchant”) but also knew finance. So only Farrell and I (and a few other top executives) knew what we were looking at, instead of a whole team. If we got seriously interested in a company, we’d add my buddy Maxine Clark, who was an outstanding merchant and understood fashion trends far better than I did. Every company we got serious about…..maybe a dozen….got a code name and page after page of reports. I had no team or assistants. I was in my 20s.
Farrell would have his secretary clip pages from the Wall Street Journal, mark them, and send them to me for a quick research report. One day i get one on a company called “Volume Shoe Corporation” with, in ink, “What do we know about them? DCF” written on it, addressed to my boss, Bill Grafstrom (clipping picture attached). This secondary shoe store chain had just started, or would soon start, rebranding their stores Payless ShoeSource. (Their older radio ads promoted cheap shoes with, “Two pair for Five! Man alive!”)
I looked into them and they looked good. I was sent to LA to study their merchandising and take pictures with Farrell’s tiny Minox camera (so as not be be seen taking pictures). The more i studied them, the more i liked them, and so did Farrell. They were far smaller than industry giants Thom McAn (Melville Corporation….see https://www.linkedin.com/pulse/corporate-giant-whose-history-almost-nobody-knows-gary-hoover) and Kinney, owned by FW Woolworth (now renamed FootLocker).
But Volume Shoe CEO Louis Pozez was brilliant, and they were growing their discount shoe chain rapidly. I even thought they did some things better than May. We did more industry and company studies, and looked at all the other discount shoe chains. Our leaders had a tendency to say, “Let’s take a look at this company,” but i resisted, saying “Let’s look at the whole industry first.” A company cannot be understood in a vacuum, without its industry, competitive, demographic, and economic context.
The work was 6-7 days a week for me for maybe 18 months. When they let me take an acoustic modem home to use overnight and on weekends, I crashed the May HQ computer running growth models i had invented! I have attached a few pictures of my final reports, with my talking points in red. Even one of my jokes (about “previously unknown standards” of merchandising)…..humor was also previously unknown in such reports at May!
Farrell got enough info to take
to the Board. Liking what they saw, it was time for a store visit.
I think it was in Detroit where a limo full of May Board members rolled up to a
Payless Store. The neighborhood was so tough and the store so
unimpressive that they either refused to get out of the car, or got out and
jumped right back in. Farrell reported back to me, “I’m sorry to say
the deal is dead.” He really wanted to buy Volume Shoe.
6 to 12 months later, in 1979, we made another run at the board, and bought the
company for about $160 million. The delay resulted in a higher price.
May carried out Volume Shoe’s plans, throwing money behind them…..hoping for a
higher return on investment than building more department stores. In the
DFW market, where Payless had maybe 30+ stores, May built at least 100, just to
discover the nation’s carrying capacity. We also experimented with
putting them into the malls we owned. May went on to open
thousands. Payless became the world’s biggest shoe store chain, selling
an estimated one-fifth of all the shoes sold in America. May spun it out
to shareholders in 1996. By then the renamed Payless Shoe Source, Inc., had
25,000 employees and sales of about $2.3 billion. With a market value of over $2 billion, this
was David Farrell’s greatest success.
Maxine Clark became head merchant at Payless while May owned it, and my friend
May executive Dale Hilpert became CEO of Payless. He was later followed
by another colleague, Steve Douglass, who was in charge when May spun it
out. Maxine later left May to found Build-A-Bear Workshop.
The Pozez family, 6 of them, each invested $25,000 in the first round of my
first startup, Bookstop, after I leaned pretty hard on them. I knew they
knew retailing and had fresh cash. So they put up $150,000 of the
$350,000 we raised to open the first Bookstop store in Austin on September 19,
1982. Louis’s cousin Shaol (S. Lee Pozez, a former navy pilot) and
Louis’s son Norman served on the Bookstop Board. Really fine people. The
kind who knew the name of every shoe store employee until they got too big for
that. But also outstanding strategists. They used their wealth
philanthropically to support their hometown of Topeka, the Menninger
foundation, a nursing school, etc. When Barnes & Noble bought
Bookstop seven years later, their $150,000 worth of stock was worth $1,650,000.
After May spun Payless out, the company went thru name and ownership
changes. From very basic, almost shabby little stores in low-income
American neighborhoods, Payless became a fashion brand in Latin America, and
covered the USA. It later became burdened by Private Equity debt.
And now it is all history. The arc of a great company’s life is over.
I could go on…..and on….and on…..with more details, but that gives you a
taste of one great company’s rise and fall over 40 years.
I also have many more stories about the other companies we looked at: we could
have bought Walgreen’s for under $500 million, but my memo was not
well-received.
And more stories about life near the executive suite. As I left one of my many Saturday presentations to the top echelon, I said to them, “Have a great weekend.” There was a pause….they weren’t used to that….it was “all business”….then Farrell said, “You, too!” Then the others, afraid to speak before him, all said, “You, too, Gary” as Farrell hit the button under his desk and his office’s power door closed behind me.
I loved every minute of it. I learned soooo much from Farrell, all my colleagues, and all our internal and acquisition candidate data, which i still have and occasionally study.
When I left to start Bookstop (which idea I first offered to May, to no avail), they hired a McKinsey guy to do what i did, told him he would rise to bigger things, and paid him six times what they paid me. He ultimately did not work out, at least not at the very top.
After Farrell retired, 3 or 4 years later May was bought by arch-rival Federated (later renamed Macy’s), and the once-great May Company is also now lost in the dust of time.
