Dive Brief:

• Stage Stores plans to transition entirely to its off-price Gordmans banner and exit department stores by the third quarter of fiscal 2020, the retailer said.
• Under the plan, the company aims to close 40 stores next year and convert its remaining department stores to Gordmans. That would leave the company with about 700 Gordmans stores, along with a possible handful of department stores until their leases allow for banner conversion, according to a press release.
• The conversions, which start in February, together with other capital spending are expected to total $30 million.

Dive Insight:

The full transformation of Stage Stores into an off-price retailer is a rapid acceleration of a strategy it has already tested with success. CEO Michael Glazer said in the release that the company has converted 98 department stores to off-price since 2018. 

"Compared to their performance as a department store, off-price conversions have consistently delivered higher sales with less inventory, similar retail margins, and lower SG&A," he said in the release. The conversions added 1.5% to Stage Stores' total comparable sales increase, at 1.8%, in the second quarter.

At the moment, the company has 625 department stores under the Stage, Bealls, Goody's, Palais Royal and Peebles banners, compared to 158 Gordmans stores. Stage Stores said in August, when reporting its Q2 numbers, that it planned to accelerate conversions to off-price. 

Less than a month later, the company opted to go all-in on off-price and Gordmans. 

It was a little over two years ago that Stage Stores rescued the Gordmans banner from the brink of oblivion. In 2017, the discount store had filed for Chapter 11 with plans to liquidate its operations. Stage Stores bought the banner out of bankruptcy — beating out a bid from the great grandson of Gordmans founder — with a plan that kept about half its stores open. 

Glazer said at the time, "By acquiring Gordmans, we believe that we have an opportunity to benefit from its off-price competencies, deep connection with a youthful customer, and strong home and gifts businesses."

Today the move to buy Gordmans appears as smart as ever, as Stage essentially bets the future of its business on the off-price banner. Looking at the retailer's numbers, it's not hard to see why. Its off-price and department store units are on different trajectories, with its department store sales falling 6% year over year in 2018 while off-price increased more than 31%. 

Those crossing trajectories describes much of the industry. The fortunes of department stores are deeply imperiled, while off-price sellers continue to make sales and market share gains. J.C. Penney, as just one example, has lost more than 3% of its market share in three years in part to TJX Cos. and Ross Stores, according to Earnest Research data recently provided to Retail Dive.

And while Kohl's has shut down its off-price experiment, the country's largest department store chain, Macy's, has taken a join-them-if-you-can't-beat-them approach with its high-performing off-price Backstage concept. The retailer is adding 50 Backstage locations to existing stores this year and has more than 200 already after launching the concept in 2015.