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Stage Stores’ Secret Weapon Came Through Acquisition

While the retail gloom and doom has had many negative impacts across the industry, it’s also provided a few silver linings. Among them is opportunity.

It’s only now that Stage Stores is starting to fully realize the benefit it gained from the demise of the old Gordmans chain, which filed for bankruptcy in March. When the old company crumbled, Stage was there to pick up (many of) the pieces. The retail group acquired just over half of the store’s locations and quickly zeroed in on its best aspect.

Since then, the acquisition has afforded Stage Stores with some unexpected benefits as well as a few unforeseen challenges—but overall, the company couldn’t be happier with the outcome to date.

“Gordmans was a hybrid high/low department store one day and off-price the next, and when they needed sales, they’d resort to a lot of coupons and things that department stores like to do,” said Stage Stores’ president and CEO Michael Glazer, while speaking at the Merrill Lynch 2018 Consumer & Retail Technology Conference in New York on Tuesday. “We immediately changed the concept. It doesn’t take a genius to look around the retail environment and see how well off-price is doing, so we wanted to get into that game.”

Calling Gordmans the “growth concept for Stage going forward,” Glazer said the off-price stores bring in a younger demographic, opens the door to more home related sales across the business and provides access to the MidWest, which is a new geography for the company.

While the reteailer did its due diligence and tried to minimize surprises, Glazer admits a few things couldn’t have been accounted for. “If there were any surprises, it was the relationships we formed with some vendors. They were very excited that we were going into that area [off-price],” he said.

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These new relationships have also had a positive effect on the company’s full-price business. For instance, Glazer said often during the holidays Stage will want to beef up its home goods selection but that’s tough to do when its buyers are only in touch with some vendors once a year. Now with Gordmans, which counts home as 30 percent of its business, the connection stays strong throughout all 12 months.

In some cases, Gordmans was especially welcomed into the off-price fold because of the location of its stores and the small size of the chain compared to the heavy hitters in this sector. Glazer said those two things mean sometimes his team gets the call when there’s excess goods when others won’t.

There was one other thing Stage didn’t quite realize before going all in on off-price though and that was the demand this channel puts on the supply chain. “In a department store frankly, it’s pretty easy. You get a case pack of something and you get one small, two mediums, two large and one extra-large and you ship it out to the store, and you’re finished. In off-price, you think you’re getting 50 of a green in XL and it turns out it’s nowhere close to that so the supply chain becomes very important in terms of ticketing and marking,” Glazer noted.

The company’s CFO Oded Shein said Stage had to improvise to get through the holidays. “You have to do a lot more work in the distribution center in order to facilitate the supply chain,” he said. “Initially, we solved the problem by just hiring a lot of people but after we survived our first holiday, we’re in the process of installing a lot of technology in the Omaha distribution center to help with the process. And we think next year will be much better.”

With the initial stages of bringing Gordmans online as an off-price retailer behind it, Stage Stores is ready to look ahead to growing the concept. It’s likely that any new Gordmans stores will be smaller than the 50,000 to 55,000 square feet they are today though. And it’s possible that Stage could convert some of its department stores to off-price locations as well.

Stage Stores is coming off of a strong year, according to Glazer. The retailer reported a 1.1% comp sale increase for the fourth quarter, marking the company’s fourth consecutive month of positive same-store sales. The company’s net income hit $5.6 million compared to a net loss of $6.8 million during the prior year period. Stage Stores operates 777 department stores under a number of banners along with 58 Gordmans locations.