Small Towns, Big Business

Crowds of tourists and locals share Midtown Manhattan’s early evening sidewalks while uniformly yellow cabs crawl up and down the broad busy avenues. In the midst of it all, more than 750 fashionistas have convened in a ballroom at the Grand Hyatt Hotel to honor four of their own for humanitarian works.

In the retailer-of-the-year category, the Fashion Delivers Charitable Foundation recognizes Andrew Hall, president and CEO of Stage Stores, for reaching out to the community in his company’s headquarters city of Houston.

For Hall, the scale and glitz of the gala contrast sharply with life in the rural parts of the country where most of the chain’s 758 Bealls, Goody’s, Palais Royal, Peebles and Stage stores are located. In a very real sense, he runs the last of the small-town department store chains.

But melding big-city fashion sense and business acumen with small-town values, tastes and logistics comes naturally to Hall, who arrived at Stage Stores as president and COO in 2006 following a dozen years as a May Company executive (he was named Stage CEO in 2008).

He had worked his way up through various May divisions to become chairman of Houston-based Foley’s when the company was acquired by Federated Department Stores (now Macy’s) in 2005. When Federated opted against maintaining a Houston headquarters, “I decided to look elsewhere, and that’s when I was exposed to Stage,” Hall says. “I started to learn about the Stage business model and was really smitten.”

Stage pursues the small-town customers that other department stores tend to ignore. Its “bread and butter is going into small towns [of] 8,000 to 10,000 people … and with a 50,000-person draw within 10 miles.

“Our stores look a lot like big-city moderate department stores,” he says. “We just happen to be in 15,000 to 17,000 sq. ft.,” primarily because Stage stores don’t carry traditional home department staples like furniture, small appliances, linens and towels.

Hall admits to not having paid much attention to Stage Stores while he was at Foley’s, even though the two chains were based in Houston. That mostly stemmed from the fact that there wasn’t much competition between the two. In fact, Stage Stores has virtually no rivals in small-town America, says Hall. “It’s really fascinating because it’s a business model that’s devoid of competition. There’s nobody else in town so it’s an under-served community.”

The chain’s commitment to bringing department store shopping to small towns dates back nearly a century, but the modern history of Stage Stores can be traced to 1988, when Palais Royal management and several venture capital firms acquired the family-owned Bealls and Palais Royal chains. The company made several more acquisitions, went public in 1996 and by 1999 had nearly 700 stores.

Then Stage “hit the wall,” in the words of a company-supplied timeline. Financial performance deteriorated in 1999 and 2000 following rapid growth the two previous years and the loss of key executives, as well as significant leverage in the face of an inflexible capital structure.

Stage Stores filed for Chapter 11 bankruptcy protection in June 2000. During the reorganization, it shed nearly half its stores and narrowed its geographic footprint.

It emerged from the restructuring in August 2001. In 2003, Stage sold its private-label credit card portfolio to Alliance Data Systems and used the proceeds to acquire Peebles, which operated 136 stores in 17 states. Further opportunity to expand in the Southeast came in 2006, when Stage bought B.C. Moore & Sons and converted 69 locations to the Peebles name and format.

As Stage Stores was maintaining relative strength in the face of economic adversity, its last direct competitors were disappearing. Dawahares, family-operated for four generations, closed its 22 small-town department stores and liquidated its assets in 2008; Goody’s Department Stores went out of business last year, and Stage Stores bought the name at a bankruptcy auction.

“Those were really the last two [remaining] small-town players of any size or magnitude,” Hall says. “So when you look today at who the key department-store-type player is in small-town America, it’s really Stage Stores.”

Specialty apparel or shoe stores “nip at the fringes of our business” in a few markets, he says. “Occasionally, you run into a Rue21 in some of our small markets, but in many markets it’s really just us, a Walmart and a gas station.” And Stage Stores views its relationship with Wal-Mart as symbiotic rather than competitive. Wal-Mart “draws from near and wide, so if I can put a Stage store next to every small-town Walmart in the country, that would be a good thing.”

Many shoppers buy groceries, pharmaceuticals and hard goods from Wal-Mart but come to Stage Stores for moderately priced national apparel brands that include Chaps, Nike, Izod, Van Heusen, Nautica, Dockers, Levi’s, Adidas, Carter’s, New Balance and Skechers, Hall says.

Extending its reach
Whereas urban department stores use private label to differentiate themselves from a competitor down the street or across the mall, Stage Stores uses private label – about 15 percent of its product mix — to extend its reach to customers caught between discount store and national brand prices.

Hall says some of Stage Stores’ private labels take on a life of their own as brands among small-town shoppers, citing Sun River for men and Rebecca Malone and Hannah in misses traditional apparel and casual sportswear. “They have a personality and a fit that appeals to those customers.”

Stage shoppers display a conservative sense of fashion that manifests itself in lagging a season behind New York and Los Angeles.

Hall is a businessman in charge of a retailing operation and, therefore, obliged to have a degree of fashion sense, though he admits to weak moments. “My wife and 17-year-old daughter tell me on those days when they don’t think I have any fashion sense,” he says with a laugh. His influence when it comes to fashion? “I always liked Cary Grant movies and the fashion appeal” the actor displayed.

Stage strives to provide big-city service with small-town familiarity. Store associates, able to see the entire sales floor from wherever they stand, know when a customer requires assistance. They also tend to maintain a first-name relationship with customers in their small markets and care about their close-knit communities.

Retailer of the Year honor
And caring about communities extends to Hall’s personal life, too. Fashion Delivers recognized that commitment by naming him its Retailer of the Year. Other honorees were John Daly, president, trade finance, CIT Group; Gary Simmons, president and CEO, Gerber Childrenswear; and educational organization Sesame Workshop.

The gala held in their honor raised $1.2 million to underwrite the costs of Fashion Delivers and another charity, K.I.D.S. (Kids in Distressed Situations). The former, founded in the wake of Hurricane Katrina, brings clothing overstocks to disaster victims; the latter provides new clothes, shoes and toys.

Fashion Delivers celebrated Hall’s service on the board and executive committee of the Cynthia Woods Mitchell Pavilion, a non-profit performing arts center near Houston, his chairmanship of a Houston-wide March of Dimes fundraising walk and his support for the local United Way.