The first rule of retailing has always been, Go where your customers are. For most department store chains, that's meant densely populated urban areas, which goes a long way toward explaining the distinctive atmosphere of, say, midtown Manhattan or the Chicago Loop.
But Stage Stores isn't your average department store chain. This retailer has set its sights on a different, niche market: America's heartland. When choosing locations for its small department stores, Stage Stores deliberately targets areas with less than 50,000 people that are at least 30 minutes from the nearest shopping mall.
Stage Stores operates 656 stores under the Palais Royal, Bealls, Peebles, and Stage nameplates. While the bulk of their sales come from brand name apparel, the stores also offer footwear, jewelry, cosmetics, and gift items. The common denominator of all of its brands is that they fill a niche between the large discount retailers like Wal-Mart and the traditional department stores.
The decision to target customers in out-of-the way places has presented both opportunities and challenges. The distance from urban centers helps insulate the stores from direct competition with the big-league department stores. But it also presents some mighty distribution obstacles. Given the perishable nature of fashion, an apparel retailer's success depends on its ability to whisk hot-selling items out to stores—whether they're in New York City or Chickasha, Okla.— before the trend cools. That's challenge enough for big chains whose stores are located mainly along major transportation arteries. It's all the more difficult for a player like Stage Stores, which serves 600-plus retail locations spread all across rural America—often in hard-to-reach places—from only two distribution centers.
"It is a different animal that requires a different approach to the supply chain," says Gough Grubbs, senior vice president of distribution and logistics. Grubbs came to Stage Stores from Foley's, the large Houston-based department store chain that is now part of Federated Stores. "At Foley's, we had 53 stores in five states. With Stage Stores, we have 656 stores across 34 states. Each Foley's store would receive a 53-foot trailer every day. Here, each store gets about 40 cartons, some of the smaller stores only six."
Grubbs adds that the size of the Foley's stores meant that most products were handled as pallet loads and case quantities. Except for items that required value-added services, cartons were never opened. At Stage Stores, every carton gets touched, either to cross dock or to break them down for split-case orders. "That puts pressure on us to touch [each case] quickly," he says. Despite all the touches, merchandise moves through at a rapid clip, he notes. "We average only a two-day turnaround in our DCs."
A shot across the dock
In order to keep products moving swiftly through its supply chain, Stage Stores has designed its two DCs—one in Jacksonville, Texas; the other in South Hill, Va.—to cross-dock as many items as possible. "We have flowthrough facilities and we do not back stock much," says Grubbs. "We currently receive 8 million cartons a year and ship out about 5 million cartons and large totes to the stores."
The secret to maintaining that speed lies in the preparation. Stage Stores has instituted a vendor compliance program under which it requires suppliers to perform a number of value-added services before the merchandise arrives at the DCs.
As a result, the company's vendors, most of which are domestic, now handle nearly all of the ticketing and hanging of goods, eliminating the need to perform those tasks at Stage Stores' DCs.
To help manage its workflow, the retailer also requires its vendors to notify it of upcoming deliveries. Today, 96 percent of suppliers send advance ship notices (ASNs) to alert the DCs that shipments are on their way. The ASNs provide details on which SKUs are due to arrive at a particular time, which allows products to be pre-allocated to stores before they ever hit the DCs' receiving docks.
"We have had a great collaboration with our merchants," Grubbs says. "We have worked together to package the products so that we have maximum efficiency to cross-dock quickly through the DC without overstocking the inventories in our stores."
Just passing through
The Texas DC is the larger of the two facilities. It boasts a footprint of 330,000 square feet plus an additional 107,000 square feet of mezzanine space, which adds up to a total of 437,000 square feet of operating space. It ships between 17,000 and 22,000 cartons and totes daily to stores.
To manage the volume, the facility relies on an array of sophisticated sortation devices, including a tilt tray sorter, a hanging garment sorter, a bomb bay sorter, and a sliding shoe sorter. (The sliding shoe sorter was supplied by FKI Logistex; the others by SDI Industries.) Which sorter is used for processing depends upon a particular product's handling characteristics.
Inbound trucks must arrive to coincide with their scheduled delivery appointments. As goods come through receiving, DC workers open three cartons from each vendor for inspection. Following inspection, they place all cartons onto slip-sheets and scan the vendor-supplied bar code on each carton to notify the warehouse management system (WMS) of the carton's arrival. The WMS reviews how the merchandise in the box was pre-allocated to orders and tells the worker where it should go next for processing. Some merchandise that had not been assigned to stores previously is allocated on the spot if there are stores in need of that SKU.
An operator on a pallet truck takes each slip-sheet to the appropriate destination, which is typically a manual induct station for one of the facility's sorters. In some cases, the goods move to a storage location. About 48 percent of the products move immediately to the sliding shoe sorter for cross-docking to shipping, where they are inducted by hand onto the sorter.
All sorts of sorts
Products that are not cross-docked are trucked to one of the facility's other sorters, where the items are unpacked from their cartons and manually inducted.
Goods arriving on hangers are handled on the DC's mezzanine level. These are grouped by SKU, color, and size before they're fed through the hanging garment sorter. When an item is needed for a store order, the sorter will release the garment along a glide path. A series of hooks open and close to direct it to one of the 600 diverts on the system where the hanging products are gathered on rails for individual stores. Each of the 476 stores that Jacksonville currently supports is assigned a permanent position in the system. (The facility is designed to handle up to 600 stores.)
A worker removes the garments from the rails and packs them into returnable totes, scanning the last piece of each order to confirm completion. The totes (which are supplied by Buckhorn) measure 27 by 17 by 16 inches, so they each hold a substantial amount of merchandise. The totes also provide consistent stacking, which makes handling easier and helps in cubing out truckloads.
The DC uses the bomb bay sorter for goods that are not on hangers, such as dress shirts, jeans, socks, and undergarments. Items drop through the conveying surface to accumulation chutes below. Together, the bomb bay sorter, tilt tray sorter, and the hanging garment sorter will enable the Texas DC to process over 84 million garments this year.
The tilt tray sorter handles boxed merchandise, such as shoes, cosmetics, and non-fragile gift items. The sorters each have a dedicated drop location for every store as well as their own pack stations. Items that will not pass through the bomb bay or tilt tray sorters, such as bulky or fragile goods and jewelry, are diverted to a manual processing area. Workers using ring bar-code scanners pick these items.
Once all items have been gathered into the totes, they are conveyed to the sliding shoe sorter for shipping. This sorter diverts products to 14 lanes where the totes and cartons are loaded onto 53-foot trailers. Stage Stores adheres to a daily fulfillment schedule, says Grubbs. "We believe in prompt replenishment and in maintaining the freshness of our merchandise."
Celerity, a third-party transportation service provider, handles all store deliveries. It picks up the 53-foot trailers at the Stage Stores DCs and takes the loads to its hubs for resorting and transfer to smaller trucks for store deliveries. The trucks may also contain shipments for other Celerity customers, including Wal-Mart pharmacies, which are often located in the same areas as the Stage stores. Consolidating those loads allows for more cost-effective delivery. Stage Stores chose Celerity for its handling capabilities and fast turnarounds. Celerity reaches 80 percent of the stores served by the Texas DC the next day. Celerity also picks up empty totes at the stores and returns them to the distribution centers.
Stage Stores' other DC is located in South Hill, Va. This 162,000-square-foot facility currently serves 170 stores, but has the capacity to handle 240 stores. South Hill is outfitted with similar equipment to the Texas DC, minus the bomb bay sorter. The absence of a bomb bay sorter means the tilt tray system must do double duty, sorting almost all non-hanger products. Some of the SKUs that would be handled with the bomb bay sorter in Texas are placed into reusable corrugated trays in Virginia, which allows them to slide more easily upon discharge from the tilt trays.
Software for soft goods
Software plays a key role in Stage Stores' distribution success. The company relies on Shippers Commonwealth, a Web-based application service provider (ASP) for optimizing its inbound logistics. The software examines inbound loads and determines what types of transport are needed from its vendors. That allows Stage Stores to better manage flow into the facility and cut transportation costs.
Shippers Commonwealth also links with the Retek warehouse management systems (Retek is now a part of Oracle) that direct operations in the two DCs. This helps the facilities to prepare to receive goods, allocate orders, and determine labor needs.
Labor itself is managed through the use of Spalding Software's ProRep solution. The software helps to assign labor and log productivity, providing essential data for the company's incentive programs. The DCs have a quality program, which is audited four times each month. Every month of achievement moves workers up a rung on the incentives scale. Workers who achieve 12 months of errorfree performance can earn pay raises of up to $1 an hour.
The incentive program is based on both individual and team performance.
The company credits the incentive program, combined with the vendor compliance program and a major effort to recalibrate its material handling equipment, with boosting order accuracy rates to a whole new level. Before these programs started, accuracy was only at 88.0 percent. Today it is 99.7 percent.
The planning Stages
In the meantime, Stage Stores' business has been expanding at double-digit rates. Last year, the company opened a hundred new stores, which represents about 20-percent growth. Much of that growth was the result of its acquisition of B.C. Moore & Sons stores, an East Coast chain. (These stores were absorbed into the Peebles brand.) While that kind of growth is welcome to stockholders, it has created challenges for the distribution system. Servicing the new stores initially fell to the Jacksonville, Texas, DC. Each store required two to three trailer loads to stock, which put a strain on the facility's limited dock space. Grubbs and his team came up with an innovative method to handle the volume without having to stage a lot of product near the stores. They took an old trailer and cut five doors into one of its sides. They then parked the trailer at the last dock of the building, with the newly cut openings facing away from (and perpendicular to) the building's other docks. That makes it easy for trucks to back up to the five temporary doors, just as if they were pulling up to one of the standard docks. Cartons were diverted into the appropriate store trailer for storage until the new store was ready to open, avoiding palletizing and other double handling.
Stage Stores intends to open about 45 stores this year and then another 70 stores per year through 2012. Its expansion plans aren't limited to stores, however; the retailer also intends to build another DC. The company is currently drafting plans for a third distribution center to be built somewhere in the Midwest. Expected to open in July of next year, the new facility will serve stores in the growing Midwest and Northeast markets.
Although the company has had experience with DC renovations— it automated the Virginia DC's manual operations when it acquired the facility in 2005—this will be the first time it has built and equipped a facility from scratch. But it has already come up with a plan: The sortation systems, software, and other systems and equipment in its existing DCs will serve as the handling blueprint for the new facility and will be duplicated there. By going with what it knows, the company hopes to avoid startup bumps and bruises, Grubbs explains. "We know what the equipment can do and what to anticipate."