Even after the start of the coronavirus outbreak in the U.S., Stage Stores — the parent company of Goody’s and several other brands, including Peeble’s — maintained optimism. The company went ahead with a hiring event at its Oneida store, which it planned to transform into an off-price version, which operates under the brand name Gordmans and is also under the Stage Stores umbrella.
But now that is in doubt. In a court filing on Monday, Stage Stores announced its plans to close all its stores and liquidate its assets unless a buyer is found quickly to pull the department store retailer out of bankruptcy and complete the transformation to Gordmans.
The transformation to Gordmans had been planned for all Goody’s, Peebles, Stage and other brand stores owned by Stage Stores. The Nevada-based company had been working on the new business model since 2018, and had found some success in transitioning 82 of its full-price department stores to the off-price Gordmans brand.
Based on those results, the company’s chief restructuring officer, Elaine Crowley, said, “Stage Stores believed the off-price model would buffer the company against the general shift in consumer behavior away from brick-and-mortar retail and help alleviate liquidity challenges.”
By the end of 2019, Stage Stores had missed its holiday sales forecasts, and shares had fallen to under a dollar. But on the heels of the announcement of the transformation to the Gordmans brand, things were looking up. Stock shares rose 13% after the announcement, and eventually reached a high of $9.50.
As the Covid-19 outbreak began, Stage Stores was moving full-speed-ahead with the transformation to Gordmans. But now, Crowley said in a filing for Chapter 11 bankruptcy protection on Monday, “absent a third-party investor or purchaser, Stage Stores does not have the liquidity to implement its plan and continue operations.”
Stage Stores closed all of its stores on March 27, furloughing nearly 15,000 employees. The changes impacted the Oneida Goody’s stores which, like more than 500 other Stage Stores, is set to reopen on Friday.
With revenues halted, Stage Stores stopped paying rent on most of its 734 leases, and now owes $31 million in past-due rent.
Problems were complicated when landlords began sending the company notices of default and, in some cases, locking the company out of its stores and beginning eviction proceedings.
“Combined with zero revenue and uncertainty associated with consumer demand in the coming months, Stage Stores, like so many others, is in the middle of a perfect storm,” Crowley said.
Stage Stores has filed for bankruptcy protection to stabilize its operations. The company “continues to believe that there is value in their brands and operations as a going concern, and have explored potential transactions in the preceding months,” Crowley said.
In addition to other things, the company is asking the court to grant it the opportunity to delay rent payments to landlords who are seeking relief, and for authority to liquidate inventory and wind down operations that would include store closings.
Stage Stores has a history that dates back to 1988, when it was Specialty Retailers. At that time, it owned Palais Royal and Bealls stores, primarily in Houston and smaller Texas towns.
In 1993, the heyday for brick-and-mortar stores, Apparel Retailers was formed and became the parent company of Specialty Retailers. Three years later, the new company changed its name to Stage Stores and went public as part of an ambitious expansion strategy.
Stage Stores filed for Chapter 11 bankruptcy in 1999, but was able to restructure and focus its growth strategy in small and medium-sized markets across the U.S. In the meantime, it acquired Peebles and Goody’s stores.
Stage Stores acquired the Gordmans brand in 2017, and had undertaken an effort to convert all of its stores to the off-price model by the end of June.
The move to Gordmans was an effort to make Stage Stores’ business operations sustainable again, but Crowley said the Covid-19 crisis was “the proverbial nail in the coffin” for the company,” coming just as (we) were working to resolve liquidity concerns and greatly exacerbating (our) challenges.”
But the future seemed bleak even before the virus outbreak. Already facing cash flow shortages, Stage Stores’ department stores — including the Goody’s stores — had a disappointing holiday sales season and continued to struggle with the start of 2020.
In the first quarter of 2020, merchandise shipments began to slow, as Stage Stores’ vendors began refusing to ship inventory unless the company paid cash on delivery. With a lack of inventory on shelves in the department stores, sales slipped even further.
As the calendar flipped from April to May, the rate at which Stage Stores began to receive default notices from its landlords increased significantly. That’s when some property owners began to lock the company out of its stores and threaten to dispose of in-store inventory.
“These threats represented an existential threat to their operations, as well as potential safety threats to the communities which they have both depended upon and supported,” Crowley said. “Responding to and managing these default notices and related litigation outside of Chapter 11 wold have been a monumentally difficult task.”
Currently, Stage Stores has more than $225 million in outstanding debts.
The company has set a deadline of June 1 to receive bids from potential buyers. Absent a buyer stepping forward, the company will soon enter wind-down mode.