Just a year and a half after exiting bankruptcy with high hopes for a comeback, discount shoe giant Payless ShoeSource is calling information technology quits. The struggling retailer announced last hebdomad that it will close all of its more than 2,000 remaining company-closely-held stores in the U.S. over the next few months.

The impendent fade of Payless ShoeSource from the U.S. retail landscape represents an opportunity for rivals to snaffle its customers. The two biggest winners are possible to be DSW (NYSE:DBI) and Caleres (NYSE:CAL).

Payless has struggled, but IT's still a big name in place

Two long time ago, Payless blamed its initial bankruptcy filing in gravid percentage on outdated stock list direction systems. The company purchased too so much merchandise in early 2015 -- overmuch of which arrived of late, due to a Westward Slide port strike.

The resulting inventory glut forced Payless to film huge markdowns, wrecking its margins. Meanwhile, a heavy debt load unexhausted it with dwarfish room to evasive action. However, the company was able to drop much of its debt during its 2017 restructuring, and planned to update its inventory management systems after emerging from failure.

Unfortunately, Payless' problems ran a little deeper than inventory management problems. For matchless thing, the footwear food market is highly fragmented and extremely capitalistic. Additionally, mall traffic has been soft for years, weighing on in-store gross revenue. Payless' failure restructuring bought it some fourth dimension, but not enough time to address these thorny issues.

A person selecting a shoe from a row of shoes on a table, with more shoes and boxes in the background

Image source: Getty Images.

Still, Payless had around $2.3 billion of revenue in 2016 and kept most of its stores open subsequently its original bankruptcy filing. Olibanum, there's a substantial revenue opportunity for rivals to fight over.

DSW is making the right moves

Resurgent off-price shoe giant DSW has a chance to convey a respectable clod of Payless' business. DSW itself was struggling with torpid gross revenue few days ago, but it returned to comp sales growth in 2017 and its growth rate expedited in 2018.

In the one-third quarter of fiscal 2018, DSW's core U.S. retail segment -- which consists of more than 500 DSW stores -- posted a strong 7.3% comp gross sales increase and grew full sales 10% class over class. Altered wage soared more than 50% and DSW raised its full-twelvemonth earnings per share counseling. Analysts expect another year of double-digit revenue and EPS growth in fiscal 2019.

DSW's self-service, off-price business model should attract to dicker-hunting Payless customers. Moreover, DSW is addressing its biggest historical weakness: the lack of a robust kids' offer. The company introduced children's sections into virtually half of its stores several old age ago and has been expanding that business aggressively. This leave assist information technology aim young parents, a key sociology for Payless ShoeSource.

DSW is on caterpillar tread to end fiscal 2018 with a bit concluded $3 billion in time period revenue, so IT is still small sufficient that taking a significant chunk of Payless' market share could have a meaty impact on its revenue and earnings growth.

The rear of Famous Footwear could also profit

Caleres is too well positioned to benefit from Payless' demise. While the party makes shoes under a number of midrange-to-upscale brands, including Naturalizer and Allen Edmonds, it generates the majority of its taxation -- $1.6 one million million stunned of a total of $2.8 one thousand million in fiscal 2017 -- from its Famous Footwear chain.

Famous Footgear has more of a focus on name-brand diversion shoes than Payless (or DSW, for that matter), but it still has plenty of overlap with Payless in terms of styles and price points. It has an tied broader store footprint than DSW, with around 1,000 U.S. locations. It also already has a cast-iron kids' offering: Caleres gets about 9% of its revenue from children's shoes, and that percentage is belik significantly high for the Renowned Footwear chain itself.

Check out the latest Caleres pay call transcript.

While Famous Footwear doesn't have quite the same gross revenue momentum as DSW, it was connected trail to send low-single-digit comp gross sales growth in business 2018 American Samoa of last November. And after closing just about underperforming locations last year, it has a more productive store base.

DSW and Caleres' Notable Footwear chemical chain will be just two of many another chains looking to gain market share as the last Payless ShoeSource stores close a few months from now. But their common focus happening selling discounted shoes in a self-serve "open-sell" initialise should make DSW and Famous Footwear go-to skid stores for many former Payless customers.

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