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Payless Turns Focus to Brand Building

Payless ShoeSource might be known for its affordable footwear, but the company has a new mission - brand building, including in apparel.

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Payless ShoeSource might be known for its affordable footwear, but the company has a new mission — brand building, including in apparel.

On Tuesday, Payless said it had acquired Collective International LP, a three-year-old Denver-based brand development, management and lifestyle company, for $91 million. Collective owns youth lifestyle and board sport-inspired brands including Airwalk, Vision Street Wear, Lamar and Sims in the footwear and kids’ apparel markets.

The acquisition marks Payless’ first foray into brand management, as well as apparel.

Ever since the appointment of Cole Haan alum Matt Rubel as chairman and chief executive officer in May 2005, Payless has gone out on a limb with several strategies. Rubel, 49, has implemented a new fashion-forward store design concept, while retaining a self-service bent. The firm has tapped ready-to-wear designers like Lela Rose and Abaeté’s Laura Poretzky to collaborate on footwear collections, while stylist Patricia Field is working on a line for holiday 2007 — she flaunted a pair of shoes from the collection at the Academy Awards last month. Rubel has also been at work honing a “house of brands” strategy, offering licensed footwear from labels such as Spalding, Champion, Dunkman, Airwalk and Tailwind, an athletic-cum-fashion brand by Exeter Brands Group, a subsidiary of Nike Inc.

“It’s one of those good days,” Rubel told WWD. “As a company, we have a tremendous amount of cash. We are looking to diversify ourselves in growth that we believe can create ideas in both brand building and footwear and accessories. Not only do they have a brand which we do business with [Airwalk], but they also have the first group of iconic youth-oriented lifestyle brands in action sports and fashion athletics. This allows the Collective group to build out those brands with different retail channels and we could help them platform that growth in the United States and internationally.”

At this stage, Rubel did not provide specifics on how Payless plans to grow the company via licensing or buying other brands. He pointed to Iconix, which on Tuesday bought Rocawear, as a model for Payless. Iconix also owns brands such as Badgley Mischka, OP and Danskin.

Collective will continue to be based in Denver and be led by its president and ceo, Bruce Pettet, who has previously served as president and ceo of Airwalk International and president and ceo of Brooks Sport Inc.

“This acquisition provides Collective with a tremendous parent company that will accelerate our ability to become the leader in youth lifestyle and fashion athletic brand licensing,” said Pettet in a statement. Pettet added the firm will look into expansion opportunities as far as men’s and women’s apparel.

Rubel also spoke of his goals for the Payless brand itself. “It’s our objective over time to become a vertical house of brands in the footwear and accessories business,” he commented. “[We want] to become the first fully integrated, vertical, specialty footwear retailer to actually build our discreet brands to have their own customer base and their own images.”

On Tuesday, the company reported fourth-quarter earnings of $24.6 million, or 37 cents a diluted share, compared with a loss of $5.6 million, or 8 cents, last year. For the period ending Feb. 3, sales climbed 13 percent to $692.7 million from $611 million in the year-ago period. Total same-store sales were up 6.8 percent.

The results included the release of $14.3 million in tax reserves, equivalent to 22 cents a diluted share, related to the closing of select income tax audits.

For the full fiscal year, earnings shot up to $122 million, or $1.82 a diluted share, from $66.4 million, or 98 cents, in the year prior. Total sales rose 4.9 percent to $2.79 billion from $2.66 billion, while comps jumped 3.5 percent for the year.

The company said its goal is to consistently achieve low single-digit positive same-store sales and earnings growth in the mid-teens.
By Sophia Chabbott and Jeanine Poggi

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