Stage buying ‘best stores’ in deal
Houston-based chain will gain bigger Midwest foothold with Gordmans bid
In an effort to broaden its appeal in a challenging retail sector, Stage Stores plans to purchase a substantial number of Gordmans stores out of bankruptcy.
The Houston-based specialty department store chain made a successful bid to take over at least 50 store leases, as well as inventory and other assets. Gordmans, based in Omaha, Neb., filed for Chapter 11 bankruptcy protection in March.
As part of the deal, Stage could acquire an additional seven store leases and a distribution center. Tiger Capital Group and Great American Group would liquidate the remaining locations and assets.
The $75.6 million bid, made jointly with the liquidators, is subject to court approval. If finalized, Stage would take over roughly half of Gordmans’ chain of 106 discount department stores in 22 states, granting it an immediate foothold in Midwestern markets where it isn’t yet located. Stage operates roughly 800 stores, including Palais Royal, Bealls, Goody’s, Peebles and Stage, in 38 states.
Gordmans racked up debt
for years as it struggled to adapt to changes in customer demand. The company owes creditors at least $131 million.
Department stores continue to lose market share to e-commerce retailers, fast-fashion chains and offprice stores, all of which lure customers with the promise of convenience and lower prices. They’ve tried to compete by offering deeper discounts, more return options and wider online offerings, but steep declines in foot traffic have forced hundreds of store closings in malls and shopping centers across the country.
In court filings, Gordmans acknowledged the widespread shift to online shopping, among other things, had undermined its brick-and-mortar business. In February alone, samestore sales declined 20 percent, more than twice the anticipated 9.5 percent decline.
Stage Stores’ president and CEO, Michael Glazer, said the company has chosen to acquire only Gordmans’ best-performing locations, which are about three times the size of a typical Stage store. He said Gordmans sells a range of inventory other than apparel, a sales category that has recently declined at many brick-and-mortar department stores.
“We took the best stores, and those stores are doing quite well,” he said. “For any retailer, if they can get rid of their worst-performing stores, what a difference it can make.”
He pointed to the attractiveness of Gordmans’ offprice sales model, which is based on everyday discounts. That approach, popularized by players including T.J. Maxx and Marshalls, has gained considerable traction by offering customers the chance to hunt for bargains within stacks of fresh inventory.
Glazer declined to comment on specifics of the transaction, which Stage intends to fund with cash and credit. The company expects to close the bid in the coming weeks.
The move comes after a challenging year for Stage, which reported a $37.9 million loss in 2016. Same-store sales fell 8.8 percent during the same period.
Stage, valued at $70.4 million, owes $163.7 million. It has $13.8 million in cash and equivalents.
Earlier this year, the company outlined a turnaround plan that includes investing more heavily in online operations and testing new concepts in brick-and-mortar stores. It plans to expand e-commerce operations, improve customer service in stores and reorient merchandise to focus on beauty products and other items.
Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based national retail consulting and investment banking firm, called the decision to purchase the strongest assets out of bankruptcy a smart move.
For relatively little money, he said, the company seized the chance to tap new markets with a set of well-established stores.
“You’re picking the best of what’s left,” he said. “That’s a huge advantage.”
Despite its efforts, Stage doesn’t expect substantial improvement in the near term. Before announcing its plans for Gordmans, the company projected same-store sales to fall this year between 4 percent and 8 percent.
Stage’s stock closed Friday at $2.59, up 3.2 percent.