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This Brand Just Went Bankrupt. Now What?

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It was a marketing executive's nightmare. Ellen Junger had just joined Payless ShoeSource Inc. as chief customer and marketing officer—less than two months later, the Topeka, Kans.-based discount retailer filed for Chapter 11 bankruptcy protection. As part of the announcement from earlier this week, Payless said it planned to close some 400 stores—or 9% of its fleet—and restructure. Now, Ms. Junger has to do some fancy footwork and convince customers to get over the bankruptcy and negative headlines, and visit the remaining 4,000 Payless locations.

"I'm well aware of the challenges in retail overall—I don't think Payless' challenges are different from what other retailers are facing," said Ms. Junger, who formerly worked at Hallmark Cards Inc.

She's currently relying on social media to relay the main message that, yes, Payless is still open for business and doesn't plan to liquidate. Many consumers have taken to Facebook to inquire about their local store closures. Payless is also using geo-location and its loyalty program, which has about 20 million members, to target consumers who used to use a store that is slated to shutter and tell them about another store nearby that is still in operation.

In addition, Payless recently unveiled a new marketing campaign and the tagline "It Feels Good to Payless." (See ad above.) Ms. Junger noted that the new work, which was created with Payless' agency of record Marc USA, should help to re-establish the brand as a value destination that offers trendy fashion at affordable prices. One hot-selling trend for the brand is casual-etics, or athletic street shoes with embellishments, which it offers for $19.99.

"Our overall marketing strategy has not changed," said Ms. Junger. "We've shifted it to focus back on our roots—that mom who is buying shoes for her family."

The 61-year-old company spent roughly $65 million on measured media in the U.S. last year, according to Kantar Retail, a figure that is down slightly from 2015. The Chapter 11 filing should allow the business more financial flexibility with marketing dollars, however. In its filing, the company said it has $1 billion in assets and up to $10 billion in liabilities.

Of course, the discounter isn't the first to fall on troubled times—it's only the most recent. Earlier this year, fellow mall-based retailers including JC Penney, Sears and Abercrombie all announced plans to close dozens of locations as they compete with Amazon for the dollars of fickle consumers, who simply aren't that into clothing and accessories right now.

Ms. Junger couldn't comment on marketing specific budgets.

Gene Grabowski, a partner at KGlobal, a crisis communications firm, said Payless appears to be doing the right thing, but could be doing more.

"One of the most useful tools I've used in bankruptcies for consumer-oriented client companies is a video of the CEO walking through an operational store and briefly explaining that his company is restructuring its debt, but it remains open during the process," he said, noting the importance of the term "restructuring" versus "bankruptcy" because it has less negative connotation.

In the meantime, Payless is testing various technological capabilities to improve its omnichannel capabilities. A few months ago, it began testing a term it calls "Endless Aisle," in which customers who visit brick-and-mortar locations can order all sizes on-site, even if they aren't in stock at that specific store. Payless also operates a storefront on Amazon.com.

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