In old age, Payless creaks to a halt - Payless Cashways - Brief Article - Company Profile - Statistical Data Included

Home Channel News, Sept 17, 2001 by John Caulfield

In 1930, as the Great Depression had the United States in its grip, the Furrow family borrowed money from friends and against insurance policies to raise $10,000 to acquire a lumberyard in Pocahontas, Iowa. That fledgling enterprise expanded slowly, but rattled its competitors by purchasing lumber directly from mills so it could sell wood at prices well below the prefixed levels that yards of that day readily acceded to lock in profit. By 1947, the company opened a store in Tucson, Ariz., that established a unique "one price for all" policy that did away with credit lines for contractor customers. Twenty-two years later, on May 9, 1969, the company incorporated its 16 yards under the name Payless Cashways and offered 254,000 shares of common stock, at $13 per share. In its first fiscal year as a public company, Payless generated $23.6 million in sales, $920,000 in net income and had 1.2 million shares outstanding.

This account is drawn from "Aged in Wood," a personal history of the company through 1984 written by Virginia Sugg Furrow, wife of Vern Furrow, who was son of the company's founder Sam Furrow. I bring this information up, in the wake of Payless Cashways' decision to discontinue its operations (see story page 3), to recall how, at least through the 1990s, Payless Cashways had been one of the industry's risk takers, but one whose loss of daring in the last stages of its existence may have contributed to its downfall.

In the early 1980s, Payless Cashways' growth strategy -- to acquire regional retailers that are market leaders and to operate them under their own names to maintain their links with local customers -- is exactly what Carolina Holdings and Builders FirstSource are doing today. The drive-through lumberyard concept that Payless pioneered (and perfected through its acquisition of its Hugh M. Woods yards in Colorado) has been much imitated across the industry but rarely duplicated in its efficiency. The network of distribution centers that Payless operated in support of its stores around the country is strikingly similar to what Lowe's Cos. is currently developing to facilitate its own expansion.

The conventional wisdom among dealers and suppliers is that Payless never recovered from its management-led leveraged buyout in 1988 that, while thwarting a hostile takeover bid, put the company into a $1.3 billion debt hole from which it couldn't climb out. Debt did halt Payless' growth and undermined its acquisition of Somerville Lumber in Massachusetts, which had agreed to be bought to realize its own expansion ambitions.

But once its growth plans stalled, Payless lost its nerve and its sense of self. For a company that was one of the first in the industry to run consumer-oriented advertising (in the late 1930s), Payless suddenly had no clue what role its stores played in a market that, by 1990, was led by Home Depot. Lowe's -- whose stores at the time weren't that different from Payless' -- bit the financial bullet and invested in the conversion of its operation into warehouse home centers. But Payless didn't have Lowe's rock-solid balance sheet, and couldn't figure out how best to play the cards it was left holding.

One of the seminal ironies in Payless' demise is how the pro customer, which the company's founders to some extent marginalized by their pricing policies, could have become its salvation had Payless' management stepped boldly in their direction. Instead, these managers moved incrementally toward pros, which only served to confuse its customers. Even Payless' last-ditch effort, in recent years, to focus aggressively on builders and remodelers was, in its execution, indistinguishable from what had preceded it.

Like myriad failed dealers, Payless lost its identity and just couldn't create another that clicked with enough customers. Ultimately, the company's timidity -- regardless of its cause -- was its undoing.