Stage Stores Inc. has become an “If you can’t beat ‘em, join ‘em” case study in a retail world where off-pricers and Amazon are not only leading, but continuing to take market share

The Houston-based retailer is in the midst of converting its full-price stores to its Gordmans off-price concept and has also teamed with Amazon, its 700 stores serving as a pickup point for the web giant’s shoppers. 

And it’s getting rewarded by customers and investors as the Bealls, Goody’s, Palais Royal, Peebles and Stage specialty department store names, which cater to small towns and rural communities, are converted.

The company’s third-quarter comparable sales shot up 17.4 percent, as net sales rose 15 percent to $399.3 million, cutting net losses nearly in half to $15.9 million. That helped drive shares of Stage Stores up 50 percent to $3.35, giving the company a market capitalization of $101.9 million — still relatively small, but a big improvement.

In the third quarter, the company converted 17 of its department stores to Gordmans, an off-price business Stage bought out of bankruptcy. That brought off-price conversions this year to 89 and boosted Gordmans’ total store count to 158. The company expects to convert essentially its whole store base to the off-price model by the third quarter next year. 

The off-price model ticks enough of the right boxes for many consumers, offering branded goods at discount prices, a treasure-hunt environment and quick-changing inventory. Off-pricers, however, offer little by way of fashion direction, picking up many of their styles from excess goods that couldn’t be sold at full price in the traditional market.

On a conference call for investors, chief executive officer Michael Glazer was bubbling over about the company’s new direction.

“We are absolutely thrilled with our third-quarter results,” Glazer said. “On nearly every key financial metric, the third quarter of 2019 was record-setting. Sales were the highest for any third quarter ever in our history. Comp sales were positive every month and sequentially grew each month. Merchandise margins improved by over 100 basis points. We leveraged expenses by 380 basis points. And the inventory levels are actually down more than 3 percent versus a year ago.” 

Availability under the company’s credit facility topped $100 million, an increase of $35 million from the second quarter. 

The 89 department stores that were converted to Gordmans this year saw third-quarter sales jump 40 percent. 

Glazer attributed the increase to “both former department store guests seeking great values as well as new and younger guests who just love off-price.” The company is expecting to pick up business at its department stores, promoting the “Last Black Friday Sale Ever.” 

Stage plans to convert 550 department stores to Gordmans locations next year, spending about $40,000 to transform each unit, resulting in a total capital spend of $30 million — on par with the last couple years. And the lower inventory levels seen by off-pricers will allow Stage to cut its inventory investment by $30 million for the year. 

That’s a lot of change and while clearly it’s a conversion that boosts sales at least early on, the real test will come after, as the expanded Gordmans establishes itself as a larger player and seeks to continue on its growth trajectory while taking on much bigger rivals. 

Stage is perhaps the most aggressive example of a retailer trying to tap into the off-price world, where T.J. Maxx and Marshalls parent TJX Cos. Inc. rules with annual sales of $40 billion and a market cap of more than $71 billion.

Ross Stores Inc., which reported third-quarter results Thursday afternoon, posted a sales increase of 8 percent to $3.8 billion, driving profits of $371 million.

Retailers have long been envious and unable to match the off-price sector’s growth, even while they feed their merchandising mistakes into its retail conveyor belt, helping to support the sector’s growth. 

Full-price stores have gotten into the game including Nordstrom Inc. with Nordstrom Rack, Saks Fifth Avenue with Off 5th and, more recently, Macy’s Inc. with Backstage. 

On Thursday, as Macy’s revealed an overall 3.9 percent comp sales decline in the quarter, ceo Jeff Gennette pointed to strength in off-price, which saw another 50 Backstage shop in shops added this year, for a total of 215. 

“I don’t think we see the limit yet in Backstage,” Gennette said. “We see Backstage could play in every single one of our Macy’s mall footprints. And we’re looking very carefully at freestanding as well.”

Backstage shops that have been open more than a year are trending up in the midsingle digits — well above the company average.

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