Off-price is looking like a much better bet than the department-store sector.
Stage Stores Inc., struggling with its department store operations, said Tuesday it will close 40 stores and convert its business model to the off-price nameplate Gordmans.
The retailer plans to begin converting its remaining department stores in February 2020, with the small-market Gordmans off-price operation to total 700 doors by the third quarter of fiscal 2020. Stage could still operate a few department store locations even after the bulk of the conversions has been completed until those doors are allowed to be shuttered under current lease terms.
While the conversion move might give Stage more reason to exist, it could also mean less apparel at the stores and a larger focus on seasonal home décor and gifts. The department store business sells merchandise from a few national brands in the intimates and active apparel categories, with the balance focused on private-label goods. Stage has been exploring how it can expand its home department categories and non-apparel offerings.
Stage’s department-store-to-off-price news continues a pattern that’s seen dozens of stores make the switch in the past year or two. CEO Michael Glazer said, “Since 2018, we have converted 98 department stores to off-price, including 17 small market conversions [that] are grand opening [Tuesday] in Michigan, Pennsylvania, Ohio, Kentucky and Tennessee.”
The company believes its success rate with the initial conversions makes the next round the right business model. Glazer said: “Compared to their performance as a department store, off-price conversions have consistently delivered higher sales with less inventory, similar retail margins and lower [selling, general and administrative expenses].”
The company said its capital spend for fiscal 2020, including the costs of the converted boxes, will total $30 million. Due to the success of recent tests of “lower cost conversions, we are able to execute our fiscal 2020 conversion strategy while maintaining our capital spend in line with fiscal years 2018 and 2019,” Glazer said.
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The CEO also cited positive second-quarter comparable sales momentum, which he said accelerated during the third quarter, as an indication that the “pivot from department stores to off-price will increase shareholder value and drive sustainable growth.”
In March Glazer already had told Wall Street that Stage planned to accelerate its pivot to off-price, but at that point it was only looking to convert about 150 department store doors.
As of Monday, Stage operated 625 specialty department stores across 42 states under the nameplates Bealls, Goody’s, Palais Royal, Peebles and Stage, as well as 158 Gordmans off-price doors, in addition to stage.com.
Houston-based Stage acquired certain assets of bankrupt Gordmans Stores Inc. in April 2017, including certain locations and intellectual property assets, for $36.1 million. Gordmans, an Omaha, Neb.-based apparel and home furnishings discount department store, was acquired in 2008 by private equity firm Sun Capital Partners.