Topeka ? 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 also has 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 also is improving its merchandise and brightening up its stores.

“We have the opportunity to take market share from so many competitors,” not just discounters and mass merchandisers, Haugh said.

Competing with Wal-Mart

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.”

A Payless ShoeSource sign points customers to a store east of a SuperTarget store in Lawrence. Increased competition from giant retailers like Target and Wal-Mart have raised questions about the future of the Topeka-based company.

Freda Riley, shopping at a Payless with her daughter Aphton, 17, likes the fact that the retailer focuses on shoes.

“You get decent shoes for not a lot of money,” Riley said. “If you have kids, you have to go to Payless.”

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.”

Stone noted that independent shoe stores have disappeared across Iowa, dropping to 251 in 2000 from 509 in 1980. Grocery stores have suffered a similar fate.

The problem for the independents as well as chains like Payless is that time-pressed consumers like being able to shop for clothes, groceries and hardware items in one place.

Focus on fashion

Customers park at Lawrence's Payless ShoeSource store, 3231 Iowa St. Increased competition from retailers like Target have raised questions about the future of the Topeka-based company. A SuperTarget store is located just west of Lawrence's Payless store.

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.

Haugh, Payless’ marketing officer, is confident, saying his strategy is to make sure that customers grocery shopping at Wal-Mart don’t think twice about anything “other than groceries.”

His goal is for women to turn to Payless for department-store styles at a lower price. He plans to draw children — and their parents — with shoes based on popular characters from the latest movies.

To that end, Payless launched campaigns this summer timed with the release of Disney’s “Finding Nemo” and Universal Pictures’ “The Hulk,” with those shoes starting at $12.99. Company officials say consumers’ have responded well to the new merchandise.

“When you have the right shoe and the customer is looking for it at the right time you don’t have to put it on sale,” Haugh said.

John Shanley, of Wells Fargo Securities in New York, said the retailer lost some of the appeal it had as a shoe-only discounter when it was spun off from May Department Stores in 1996. But despite its struggles, including the downgrade by Moody’s, Shanley said Payless is in good financial shape, with relatively little debt.

Payless must continue updating itself to compete, he said.

“Clearly, you can’t stand still,” he said. “This is fashion.”

Shanley pointed to the revival of another shoe chain, Famous Footwear, which has a new management team and merchandise, and said of Payless, “It can be fixed.”

Haugh agreed, adding, “We believe we’re well-positioned. It’s a long journey.”