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How much loyalty do off-pricers have?
Through a special arrangement, what follows is an excerpt of an article from FierceRetail, an e-newsletter and website covering the latest retail technology news and analysis.
TJX Cos. has had consistently strong financial results — the envy of most retailers — but is this the result of something specific to the company or a consumer trend that can be tapped by others?
The NPD Group asked that question, and using data from its Checkout Tracking service, got a few answers.
First, TJX is enjoying slightly more than its share of off-price dollars spent overall, but category-specific data is revealing.
“It seems that off-price buyers are, first and foremost, loyal to the idea of off-price shopping. And such buyers are increasing in number. But the growth appears to be widely distributed across the universe of off-price retailers,” NPD told FierceRetail in an e-mail.
“There seems to be little loyalty among consumers to specific off-price retailers,” according to analysts at Checkout Tracking. “T.J. Maxx buyers gave T.J. Maxx four percent of their apparel wallet, while giving three percent to Marshalls and two percent to Ross. Marshalls buyers give 5 percent of their apparel wallet to that retailer, while giving three percent to T.J. Maxx and two percent to Ross. Nordstrom Rack buyers give five percent of their apparel spend to that chain, while giving three percent each to T.J. Maxx and Marshalls.”
As rivals grow new off-price formats, TJX’s dominance could be threatened.
New formats are opening at a rapid clip. Nordstrom is looking to its Rack stores for growth, Macy’s is developing Backstage and Saks Off Fifth is Hudson Bay’s growth vehicle.
TJX’s loyalty program, TJX Rewards Access, promises a sweepstake entry every time the member shops, opportunities for free giveaways and invitations to private parties.
Discussion Questions
Discussion questions: Are consumers naturally less loyal to off-pricers than fuller-price concepts such as department stores? What steps could TJX take to prevent or lessen its customer base from jumping to many of its new competitors?
Poll
BrainTrust
Adrian Weidmann
Managing Director, StoreStream Metrics, LLC
Ed Rosenbaum
CEO, The Customer Service Rainmaker, Rainmaker Solutions
Location, location, location. Off-price shoppers are drawn to the off-price brand that is most convenient for their shopping journey and not the specific brand. Location and inventory rotation that introduces new products on a consistent basis will keep bringing those returning shoppers back. Keeping the inventory fresh will allow those shoppers to discover a hidden surprise that will spark their shopping adventure and keep them coming back for more surprise and delight!
Right on Adrian! Without building in surprise and delight for patrons mundane becomes master and lost is any bankable value proposition or prospect of growing a relationship. Bankers think in terms of stock turns (God love ’em all); retailers know that experience drives everything.
I’m glad to see you cite experience as the driving factor, Lyle. Experience, not just pricing, is imperative to gaining off-price customer loyalty. Experience is also where off-price retailers have to most opportunity to improve.
As off-price retail outlets increase in size, they mustn’t make the mistakes that are shuttering big box stores. Cleanliness, associate friendliness and product appearance can’t go to the wayside as sale volumes increase.
Nordstrom Rack does an awesome job of highlighting their product with enticing lighting and creating a boutique atmosphere unique to their off-price stores. They don’t compete with T.J. Maxx on price, but blow them out of the water on experience.
Experience will soon be the only reason customers go to brick and mortars, so it’s time for off-price to get on board!
Let’s start with facts. Off-price shoppers are loyal to heavy discounts. That shouldn’t come as a shock, or new news, to anyone. At the same time that doesn’t mean that they couldn’t be loyal to an individual retailer or retailers in the off-price channel if those retailers tried to build loyalty around something else than … well … price. As long as you tell customers that the most important thing they should look for, or that you offer, are extreme discounts alone, you are never going to be in position to build true, effective, sustainable brand loyalty. As competition increases the off-price pie will continue to fragment into an increasing number of piles of crumbs. If I were TJX’s management I would begin doing extensive customer research to find out who my customers really were and what else — besides extreme discounts — they were looking for. Trust me, shoppers aren’t just defined by the discounts they pursue, but if you don’t realize that, the winner will be the company with the narrowest margins and the most locations.
The lack of off-price brand loyalty suggested by this research indicates that retailers that hitch their wagon to the off-price horse are traveling down a slippery, downhill slope. But this not to say that customer experience cannot generate loyalty. When the off-pricing is similar, the brand owes it to itself to gain traffic and conversion through consumer visit preference. In-store branding, merchandising, vitality and ambiance through modern media, such as dynamic signage, is a differentiator in the “us too” world.
Low-price shopping consumers are loyal to their wallets and purses, not the retailer. As soon as they find one retailer with a lower price than the one they have been going to, they will move. It’s all about the money. The retailer has trained their customers to think that way.
You might think that a loyalty card or credit card that offers deeper discounts would be a way to grab some loyalty, but that only lasts until the competition matches the discount programs.
One way to potentially compete is to have exclusivity (over other low-price or off-price retailers) with certain brands. The combination of a low price with exclusive merchandise can work. Or what emotional connection can the retailer make with the consumer? Is it a person at the store? Is it a community project or charity the store supports? An emotional connection can help thwart the loyalty to just low price.
If you’re going to compete on just price, your customers will be prepared to always be be the lowest price or lose customers.
First, the shoppers are loyal, as Monk said, to the PRICE. The off price. The price is first, so TJX needs to keep the prices aligned. Next, the assortment and the right number of surprise items and really great ranges of fits of grand deals need to be aligned. Last is location. People will drive further to have a great discount shopping experience.
Budget shoppers are not loyal to off-price discounters when they are not really off-price. Playing the price ticket is tricky just because the budget shoppers are by their very definition not loyal to any retailer.
Not much, but there is a path of least resistance which says that a shopper will go back to the last place they were happy purchasing at and try that retailer first. I’d define loyalty as “yours to lose.”
Loyalty to off-price retailers is the same as loyalty to the almighty dollar. If dollars can be saved buying an item that looks the same as the big-name product, go for it. Who will know the difference except your wallet? I do not understand spending more for the same item just to buy it at a big brand store.
TJX success can be found in its merchantS and supplier relationships. It’s the treasure hunt! Shoppers are loyal to great “on-trend” finds at a great price, and TJX has the market cornered. They know their customer, and that customer has changed very little over the last couple of decades, as digital has not had the same material impact on them, as compared to other retail segments. Their customer knows that if I need a fashion item and/or home good, there’s a great find waiting for me at a TJX store. Customers will keep coming back, as long as the merchants keep working their magic.
Disclosure: I worked at TJX for quite a few years.
An off-pricer is looking for value; that’s obvious, but what isn’t being noted is if customers perceive all retailers of these goods as the same. TJX may have a higher perceived offering than Ross in the eyes of the customer, but lower than Nordstrom Rack. If these brands can better understand the consumers that shop at their stores, they can be more strategic in their offerings and highly targeted in their marketing efforts.
I just can’t lump all these brands into the same category. While Marshalls and TJX are pretty much a hodge-podge of discounted merchandise, Off 5th and Nordstrom are much more about the brands they represent. If the consumer is a fan of Saks and their very high-end merchandise, then shopping Off 5th is going to be a choice, not a convenience. Marshalls vs TJX? Which ever is closer will do.
And that’s my 2 cents.
I’m not sure how loyal people really were with department stores. The image I have is of women faithfully checking newspapers for sales, then shopping at a few favorite stores more than a specific one.
But back to the issue at hand. “Loyalty” is earned when a retailer differentiates itself; price, service and selection are some of the common differentiators and clearly, if you’re in a field that offers little/no service and concentrates on price, selection is what remains. But can this work in off-price, where the ability to sell by brand is often restricted, if not by formal restriction then by the necessity of offering whatever is available? It’s a challenge — the idea of a “curated” selection at this type of store seems almost mirthful — but what other option is there?
Loyalty is a challenging goal for retailers in a segment where consumers are almost entirely driven by price. While some of the off-price retailers offer loyalty programs, none of them seem to stand out as being very compelling. Some offer 1% rewards based on combined purchases and others offer special promotions or sweepstakes, however, none of these appear to be enough incentive for consumers to be loyal to an off-priced brand.
I think the key to winning customers’ loyalty in this segment is to consistently wow customers with great deals, again and again. The “treasure hunt” excitement is what will continue to keep TJX (they also own Marshalls) in a lead off-price position. I have always found TJX/Marshalls shoppers to be very loyal to the brand. They shop elsewhere as well but typically visit the stores more than once per month. As far as loyalty programs, I would like to see a retailer offer a more compelling program with rewards greater than 1%. If consumers knew that they would be getting extra discounts based on how much they spend, maybe they would spend more or shop the same brand more regularly.
Another interesting approach might be to adopt the Jet.com dynamic pricing strategy where the shopper gets a greater discount based on a higher basket value or the old Filene’s Basement automatic markdown cadence where the price automatically drops 25% every 15 days until it is sold or sent to goodwill.
Perhaps overlooked in this discussion is the reality that for a great many shoppers, off-price apparel has become the primary option. This is a hard reality for mainstream and upscale department stores, but it largely explains why they are expanding with off-price shops of their own.
Buyers for TX Maxx, Marshalls, and Ross — not to mention Steinmart and Burlington Coat Factory — may be vying to source and sell the same pair of name brand jeans to the same shoppers. To keep their racks full and interest high, they fill them in with off-brand or even direct-sourced merchandise that is made specifically for the channel.
Hard for me to see how veteran bargain-hunters can muster up a loyal feeling for this kind of shopping experience.
To earn a customer’s loyalty it is essential to consistently understand and satisfy their needs better than the competition. There is a group of shoppers who have a primary need for lower prices on products that are perceived to be of higher value. If off-price retailers are going to compete on this basis alone then it would be challenging to earn a customer’s loyalty relative to the competition, who may have a similar undifferentiated offering. The fuller-priced retailers look to differentiate through their product selection, an enhanced shopping experience and better customer service. Some of the fuller-priced retailers look to build personal relationships between store associates and individual customers with the explicit intent to earn the loyalty of those customers through relationship building. If off-priced retailers want to earn the loyalty of their customers they will need to better understand the needs of their customers and ensure they’re satisfying them beyond the simple mechanism of lower prices.