Which off-price retailers will withstand the test of time?

Discussion
Photo: Nordstrom
Dec 05, 2017
Jasmine Glasheen

Many off-price retail chains are reporting same-store sales declines for 2017. Nordstrom Rack recently reported a sales decline of 0.9 percent and Hudson Bay’s off-price concept, Find @ Lord & Taylor, reported a 4.6 percent drop in sales in the past six months. In addition, Neiman Marcus closed 10 of its “Last Call” stores last year, leading MarketWatch to question whether off-price retailers are beginning to “cannibalize themselves” as a result of declining customer interest in the segment.

While on the surface the TJX machine appears to still be thriving, its consolidated same-store sales were stagnant in 2017. Compare this to a five percent increase in same-store sales last year and it looks like not even TJX is immune to the shifting retail tides.

And Nordstrom Rack? Despite the cautioning by retail analysts that the off-price segment is over-stored, CNBC reports that Nordstrom Rack is planning to open additional stores in both the U.S. and Canada in the coming year.

Many of the aforementioned retailers blame their sales declines on the recent hurricanes. Keeping cataclysmic weather events in mind, then, how these off-price retailers perform in Q1 of 2018 will give analysts conclusive evidence of whether the off-price segment’s heyday is coming to a close.

This begs the question of whether consumer interest in off-price concepts is indeed, on the decline. And, if so, which off-price retailers will be the last ones standing.

DISCUSSION QUESTIONS: Has consumer interest in off-price shopping waned? How can off-price retailers differentiate themselves in light of increased competition for market share? If there’s a shakeout in the segment, which chains do you expect will continue to do well?

Braintrust
"Retailers operating off-price stores need to take another look at their target demographic and figure out if they need to shift their strategy."
"I think the idea of “off-price” is more of a retail idea than it is a consumer one."
"I believe this is due to increasing income inequality. There are stores for the 1 percent, the 0.1 percent, then there are stores for the rest of us."

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28 Comments on "Which off-price retailers will withstand the test of time?"

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Bob Phibbs
BrainTrust

With secret Facebook swapping and buying groups and sophisticated apps for reselling your own stuff, how much demand is out there for leftovers?

Georganne Bender
Guest

I belong to one of those secret Facebook groups that’s run by an indie retailer. It’s brilliant.

Dick Seesel
BrainTrust
Every time a retail segment gets overcrowded with “me too” brands, a shakeout is inevitable. Between the key players like TJX and Ross, the luxury retailers’ outlet brands, and the new entries like Backstage and Off/Aisle, the market is ripe for consolidation. It’s no different from the waves of brand closures that swept the department and discount store industries, but I do expect TJX and Nordstrom Rack to be among the survivors. Meanwhile, off-pricers keep expanding their brick-and-mortar footprints (often in other retailers’ closed sites) at the same time that most other big chains are working on omnichannel initiatives. You… Read more »
Debbie Hauss
BrainTrust

I think retailers operating off-price stores need to take another look at their target demographic and figure out if they need to shift their strategy. It’s definitely not the off-price market of the ’80s and ’90s today. As we talk more and more about how important the “experience” is to new generations of shoppers, the off-price segment could fall behind if it doesn’t gear up. The fastest-growing segments of younger shoppers just might not be enamored with the experience of searching through racks of clothing squeezed tightly together in the effort to find one great sweater deal.

Neil Saunders
BrainTrust
Consumer interest hasn’t waned and off-price as a whole continues to grow and to take share from other parts of the market. However, growth is most definitely slowing – especially in off-price apparel. The problem is twofold. Firstly, increased supply due to store expansion and more traditional players like Macy’s trying to grab a slice of the market. That means spoils are spread more thinly than they once were. Secondly, more moderate growth in demand – at the end of the day, there is only so much clothing consumers can buy (no matter how great a price it is being… Read more »
Cathy Hotka
BrainTrust

Off-price retail isn’t going away, but mediocre off-price retail is. The success of TJX prompted a slew of competition, but not all understood the formula, which requires unpredictability and skilled merchandising. Companies that want to compete in this area should look carefully at what makes TJX so compelling.

Phil Masiello
BrainTrust
Even off-price retailers need to provide value other than a cheap price. When the selection becomes stagnant and redundant, they lose consumer interest. The original model of off-price retail was a buying group scouring deals around the world and providing discovery for the shopper. There were different and unique products all of the time. So it made the trip worthwhile. I compare this to the center of a Costco store which changes on a regular basis and the customer is surprised by some of the deals. But today, it is a model of building products for these off-price stores. So… Read more »
Meaghan Brophy
BrainTrust

Agreed, Phil. Any retailer can have cheap prices, and they can do it online. True off-price retail is hard to execute well, and many retailers are missing the mark. I think TJX will withstand the shakeout. Nordstrom Rack will survive too, if only by sheer will.

Art Suriano
BrainTrust
I think there are two reasons why off-price sales have been slipping. First is the intense competition that continues to increase both online and in-store. But a second one is that the economy is showing definite signs of growth and improvement with three consecutive quarters of 3 percent GDP, the highest consumer confidence in 17 years and the lowest unemployment in over 16 years. These reasons may mean that those customers who were shopping off-price not by choice but by necessity may now be in a position to go back to the retailers they prefer. If this theory is correct,… Read more »
Bob Amster
BrainTrust

Off-price works when the product is comprised of recognizable brands at a perceived value. It is easy to over-store the segment and difficult to determine how many outlets is just enough, especially when one has been successful in the past. The trick is to pinpoint how much runway there is in one’s category. I agree with Dick Seesel. There is going be consolidation.

Kiri Masters
BrainTrust

The question in my mind is how well off-price can or will translate to an online environment. Beyond daily deal-type sites and online consignment stores, there doesn’t seem to be a lot of traction in this category. Does the limited inventory and thrill-of-the-hunt experience of off-price shopping mean that its destined to be offline forever? That would be good news for incumbent off-price retailers who will be able to scoop up low rents in vacant retail spaces left by beleaguered department stores.

Jennifer McDermott
Guest

I agree Kiri, I think the experience encompassing the off-retail shop is a big factor for consumers. I think it would be drowned out online where coupon comparisons, eBay, et al reign supreme. The thrill of the hunt would be greatly lessened through tabs and clicks.

Liz Crawford
BrainTrust
Hurricanes are a factor in retail sales declines. Amazon is another factor in off-price store sales declines. But differentiation from “full price” retailers is the biggest underappreciated factor. While TJ Maxx has a clear selling proposition, other off-price retailers aren’t so clearly distinguished. J.C. Penney, for example, is struggling. Department stores which have a high-low proposition (Nordstrom/Nordstrom Rack; Macy’s/Macy’s Backstage) do seem to be cannibalizing themselves … compressing their own margins. I believe this is attributable to increasing income inequality. There are stores for the 1 percent, and even the 0.1 percent, and then there are stores for the rest… Read more »
Lee Kent
BrainTrust

Off-price shopping is not going away. Today’s consumer is much more cost conscience than past generations have been. They just aren’t as focused on the same things. They don’t get excited to see designer labels at 40 percent off like we were. They want basic but sustainable pieces alongside trendy accessories that can easily make many outfits and not cost the farm. Are the big time labels out? No, but that is the niche Rent the Runway is cornering, isn’t it? Smart retailers have to keep rolling with the tide. For my 2 cents.

Gene Detroyer
BrainTrust

Once upon a time “off-price” was good stuff for less. But consumers have figured out that “off-price” has evolved into less than acceptable quality for less. One can only fool the consumer for so long.

Adrian Weidmann
BrainTrust
Where is the innovative and strategic thinking? Brands need to take the time to understand who they are and who their customers are — then implement a strategy that connects the two using the most frictionless methods. Just because it is successful for TJX doesn’t mean it’ll work for your brand. The brave new digital world in retailing requires brave new thinking for out-of-date marketing and merchandising tactics. Here’s one foundational fact — Retail IS a consignment business! When are brands and retailers going to admit it and design and implement solutions to help shoppers with new business models and… Read more »
Chuck Palmer
BrainTrust

I think the idea of “off-price” is more of a retail idea than it is a consumer one. While many consumers are motivated by a bargain or a value, more sophisticated merchandising systems result in less supply for this category. So we see a saturation of goods made specifically for off-price and consumers understand that.

With the exception of TJX, most companies are falling flat on the in-store experience, which should be about authentically good products at deep discounts.

Lee Peterson
BrainTrust
Don’t forget that all boats are floating at the moment so it doesn’t seem like “discount” is top-of-mind vs. value (value is what you get, price is what you pay). I mean, unemployment is super low and we haven’t had a recession in almost 10 years. Also, everything is on sale all the time now so the very definition of a deal has changed. Regardless, I think what we’re seeing is that there’s a limit to the off-price market and we’re running into it. How many Racks can you have or how many off-price centers can you build before people… Read more »
Joy Chen
BrainTrust
Most of the off-price retailers are brick-and-mortar and department store-focused, with both of those formats in decline. It’s difficult to say if off-price’s decline is driven by those trends or suffers from only positioning. An off-price retailer chain can do well if they can 1.) provide appealing products through online and 2.) offer products that cater to a specific consumer group (such as Millennials). There are many examples of successful off-price retailers in the beauty and apparel space. Additionally, value is provided by many of the regular retailers so the competition is much more fierce. Among the existing off-price retailers… Read more »
Peter Luff
BrainTrust
When a concept starts it’s exciting; it’s full of surprises which is great for the consumer. Everyone sees the success and piles in for a slice of the pie, it’s an inevitable life cycle. So are the next stages which are maturity, stagnation and oversupply of a format. Market economics will then inevitably come to play and there will be market fall out. The ones that survive will be the ones that still keep the surprise element for the consumer, with great buying and the better in-store experience. For me TJX is best positioned for this but it is a… Read more »
Edgar Alverson
Guest

Some of the off-price retailers that are doing well despite the industry headwinds, like CitiTrends, are somewhat protected from e-commerce because so much of their sales are in cash (60 percent in CitiTrends’ case).

Brian Kelly
Guest
3 days 40 minutes ago
Michael Silverstein published “Treasure Hunt” in 2006. In it he recognized a shift in shopping behavior of middle class shoppers. “Their tight budgets force them to make tough choices and tradeoffs. Middle-class consumers are also fundamentally smart. They are usually careful and analytical in their purchases.” Out of that came TJX, Costco among others. Newly minted, these alternative retailers satisfied an unmet need. Like all of retail, boring is death. The great swath of “off price” retail pales in comparison to those who created “off price.” These wannabe retailers are dismal. They do not offer treasures, regardless of the price.… Read more »
Ken Morris
BrainTrust
I don’t think that consumers’ interest in off-price has changed, but same-store sales are declining due to a more crowded category. Off-price retailers have continued to open more stores and more luxury brands are extending their brands by opening off-price stores. It seems like the off-price stores that are performing the best are the off-price branded retailers that are focused exclusively on the off-price category: TJX, Ross Stores, Burlington, Five Below, and the dollar stores. The stores that will thrive are the ones that continue to surprise shoppers on their treasure hunt. Having the right products at the right prices… Read more »
Craig Sundstrom
Guest

L&T has an off price segment … who knew? Anyway, with the move to online sales — yes, here I go again beating the drum about the increasing irrelevance of traditional metrics like “same store” and an explosive growth in the number of brands (it seems like it anyway) — I’m reluctant to attach too much meaning to small declines over small periods. Yes, we may see declines in the individual companies, but the segment itself I think will be stable … we don’t have much movement in full price, so what’s left?

Kate Munro
Guest
Far from it. From our perspective, the off-price retail segment is still growing and is still a bright spot in the overall retail segment. According to IHL, mass merchants and discount stores sales were up 4.5 percent in the first seven months of 2017. ACTION, an off-price store chain based out of the Netherlands, is growing sales by more than 30 percent year over year and is expanding into Europe. In the US, Ross Stores is another one doing well: Sales last quarter jumped 8 percent year over year on a 4 percent comparable-store-sales increase. And Dollar Tree store sales… Read more »
Georganne Bender
Guest
Consumers still like shopping off-price because everyone likes to save money – nothing brings us together like a deal. My Millennial kids frequent certain off-price retailers, but they also shop Zulily and some of the other brands that offer pop-up deals every day on Facebook. Have you shopped in an off-price store lately? And I don’t mean HomeGoods because it offers a variety of cool merchandise and no one cares if it ever graced the aisles of a department store. Most of these retailers buy specifically for their off-price stores, so as a consumer you have to wonder how many… Read more »
Min-Jee Hwang
BrainTrust
Off-price retailers are not just competing on price. They also have to offer a good selection and an excellent customer experience. Newcomers to the off-price segment are realizing that this is not a “set up shop and shoppers will flock” situation. Just because you offer discounted items, it does not mean that shoppers will necessarily want what you’re offering. Nordstrom Rack is a leader in the space because they have a great website and arm their associates with mobile devices to make any area of the store a checkout stand. The off-price retailers that continue to advance the shopper experience… Read more »
Ricardo Belmar
BrainTrust
Off-price retail is not going away. Consumers have shown a clear favoritism for discount apparel pricing. Just look at how quickly Amazon has taken the apparel business market share! There could be many reasons for a decline in growth, but I believe it’s primarily due to consumers slowing down their overall apparel purchase (which may change during the holiday shopping season) and second, due to an increasing number of off-price concepts opening. Are there any department store brands that haven’t opened an off-price concept? This has diluted the market and spread the sales around. As to who will survive, I’d… Read more »
wpDiscuz
Braintrust
"Retailers operating off-price stores need to take another look at their target demographic and figure out if they need to shift their strategy."
"I think the idea of “off-price” is more of a retail idea than it is a consumer one."
"I believe this is due to increasing income inequality. There are stores for the 1 percent, the 0.1 percent, then there are stores for the rest of us."

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