Can a failed department store find a second life as an off-price retail chain?

Discussion
Photo: Wikimedia Commons/Caldorwards4
Jun 08, 2017
Matthew Stern

The headlines continue to tout off-price retail as the one space where department store retail can hope to thrive in a market that’s otherwise drying up. No doubt with that in mind, one longstanding traditional department store has decided to rebrand itself as an off-price chain.

In March, department store chain Gordmans was bought out of bankruptcy by Texas-based Stage Stores, according to Omaha World Herald. The new owners have said that they intend to turn the chain into an off-price retailer like T.J.Maxx or Burlington. The chain’s new owners plan to have the inventory in place for the coming back-to-school season. The chain is also planning on doing away with coupons, sales and promotions.

Gordmans is hardly the first department store chain to explore its options in off-price. Macy’s, for instance, rolled out its Backstage concept in 2015 to try to boost interest in the struggling chain (which had already grown deal-oriented in its mainline brand). And luxury retailers like Saks Fifth Avenue and Nordstrom have opened up off-price chains so customers can partake of the main brand’s luxury appeal at a lower price point.

The notion of getting a fresh start in off-price seems reasonable in light of research from the NPD Group last year which revealed that two-thirds of clothing shoppers shop in off-price outlets. But there are frequent criticisms of retailers making off-price moves.

One such criticism is that off-price concepts are bound to cannibalize a chain’s own customers, pulling traffic from the main concept and into the cheaper store. Committing fully to off-price rather than attempting to revive the chain’s mainline stores and add an off-price concept avoids this concern.

But there are other potential hurdles for Gordmans. The chain is entering into a market that’s getting more crowded as retailers recognize its popularity.

And the top names in the space are expanding their brick-and-mortar presences at a rate that’s surprising given the frequent observation that today’s retail world is over-stored. TJX announced last year that it was embarking on an expansion that would increase its store count from 3,700 up to 5,600, but did not give a timeline for when this would be complete.

DISCUSSION QUESTIONS: Do you think Gordmans will find success rebranding itself as an off-price retailer? What will it need to do to pull it off? Do you expect other struggling department stores to follow Gordmans lead?

Braintrust
"From my recollection shopping a few Gordmans stores in the past, they were a Kohl’s wannabe without the geographic footprint to be sustainable."
"...it’s almost a guarantee that in a few years, all retailers will be chasing after some other business driver other than off price."
"Selling product that’s available everywhere else based on price and convenience is a difficult road to follow."

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8 Comments on "Can a failed department store find a second life as an off-price retail chain?"

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Art Suriano
BrainTrust

Considering that there are already too many retailers in the off-price business, it’s hard to say how successful Gordmans will be. They had a niche when they were the local Nebraska/Iowa department store but once purchased by Sun Capital, their expansion without a good business model hurt them dearly. Stage Stores themselves has not been successful lately so having them now drive the path for Gordmans gives me concern about how strong the Gordmans future will be. Unless Gordmans can create great appeal to their former customers as well as finding new ones that will enjoy shopping them, it’s unlikely this will be the big win turnaround in the long-term. Added to that, all the new retail concepts coming mostly from e-commerce businesses opening retail stores, it’s almost a guarantee that in a few years, all retailers will be chasing after some other business driver other than off price.

Chris Petersen, PhD.
BrainTrust

Gordmans has an interesting historical saga of flipping from a department store to “off-price” stores,” back to Gordmans focused on brands. Starting in 1975, Gordmans started opening stores specifically branded “1/2 Price Stores.” At one point the 1/2 Price Stores accounted for half the stores in the chain.

So what happened to the success of off-price stores for Gordmans and other department stores? The retail world has changed dramatically in the last two decades. Yes, consumers are still price conscious, but they now have an increasingly diverse array of options online, as well as stores.

To paraphrase Warren Buffet at his last shareholder’s meeting: “The department stores and malls are already represented online”… often at better prices. Retail stores can no longer just compete on price and selection.

This weeks discussion regarding UNTUCKit opening stores a great example of how online is merging with physical stores to create a hybrid model that reaches how consumers where and how they want to shop … even for value clothing.

Dick Seesel
BrainTrust

From my recollection shopping a few Gordmans stores in the past, they were a Kohl’s wannabe without the geographic footprint to be sustainable. Now they are aiming to be a TJ Maxx wannabe but will still be saddled with the same problems. It’s tough to enter an increasingly crowded sector without the physical footprint or the buying power to compete against TJX, Ross Stores and now Backstage.

Stage Stores is trying to maintain multiple concepts and brands (Peebles, Goody’s, Bealls and now Gordman). Why not operate one concept under one brand-name umbrella? It’s the “Bon Ton syndrome” where none of the individual brand names is strong enough to overcome the lack of scale.

Steve Montgomery
BrainTrust

My knowledge of Gordmans is limited to the one location they had in Vernon Hill, IL. They had remodeled a failed movie theater into a retail location behind a large strip center. Not a location that boded well for them. My one visit convinced me they were looking for identity and it would be a long search.

The area already has a number of off-price retailers (Ross, TJ Max, etc.) and a large off-price center is being built on the one corner that is not yet loaded with retail. I realize this is what we refer to as “grandmother research” but this location has no chance of success.

In the larger world of retail, off-price has done well and there are, as others have noted, a number of successful brands that Gordmans would have to compete with. I give them little to no chance of success.

Peter Charness
BrainTrust

Selling product that’s available everywhere else based on price and convenience is a difficult road to follow. Unless you can be cheaper and more convenient than the online world (or other large retailers), you don’t have a sustainable competitive advantage that will in the end be profitable.

Karen McNeely
Guest

I think the only chance for department store survival is to escape the downward spiraling of deep discounts and coupons (nothing new here, that’s been said for over a decade) and find a new purpose for bringing customers back into their stores.

Having worked in both department store and non-profit retail, I’ve learned that people will pay more for experiences. Whether that means bringing in trunk shows, live entertainment, adding wine or coffee bars, or finding other reasons other than a coupon that people will want to come into their stores.

I have to disagree with Dick Seesel about the wisdom of a chain keeping a home town name. While the individual nameplates may not have national recognition, they are meaningful within their trading area. I think playing on these hometown traditions could be a point of differentiation.

Craig Sundstrom
Guest

Yesterday, we discussed the value of a brand, and this seems to be a demonstration of that. Stage operates a large number of stores in the region, and presumably they saw value in purchasing the Gorman’s nameplate rather than expanding one of their own. We also discussed whether this makes really sense if you keep the name but change the format (and everything else that the brand stood for). I’m not familiar with the store, but the World Herald article suggests it was (already) a discounter, so maybe it’s not such a stretch.

I wish them well, though I’m not sure the world needs another TJX … we already have one.

Ricardo Belmar
BrainTrust

The only reason the off-price concept is working for other department store brands is because they leverage their existing brand value, but provide a lower price point for customers. This brings them an expanded customer base that otherwise would not shop at their full line stores. However, the risk is that their existing base will migrate to the off-price store and abandon the primary brand, eroding revenue for the retailer. So Gordmans takes a different approach by fully converting their brand to off-price. Will their former customers come back in that model? Depends on the merchandise but the competition won’t be any less than it was as a department store in fact, it may be even tougher against brands like Ross, TJ Maxx, Marshalls, and so many others!

wpDiscuz
Braintrust
"From my recollection shopping a few Gordmans stores in the past, they were a Kohl’s wannabe without the geographic footprint to be sustainable."
"...it’s almost a guarantee that in a few years, all retailers will be chasing after some other business driver other than off price."
"Selling product that’s available everywhere else based on price and convenience is a difficult road to follow."

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