Do treasure hunt experiences provide the key to discounters’ fortunes?
Discount store retailers that don’t offer customers a “treasure hunt” experience are struggling to keep up as an increasing number of online retailers are adopting intuitive systems that let them adjust prices to beat competitors without human interference. A growing number of cost-conscious consumers are coming to believe that they can get the lowest prices by shopping online.
It should come as no surprise then that some physical discount stores with narrow inventory selections are shutting down in this environment: Charlotte Russe, Payless — the list grows on. Could this mean that the reign of brick and mortar value behemoths is coming to an end?
Discounters may have been one of the top performing sectors over the past decade, but fewer consumers are looking to stores for their shopping needs. There’s an ongoing debate about whether online prices are cheaper than those in physical stores –– the idea being that in-store shoppers are paying for the “service” of interfacing with sales associates and trying products.
The Balance reports, “Retailers do not always offer the same deals in brick-and-mortar stores as at their online counterparts because the cost of running a physical establishment can be considerably greater than for an online store. Factors such as rent, electricity, payroll, fixtures, and shrinkage loss all contribute to the gross margin and overhead of doing business in a shopping center or elsewhere.”
Retailers such as Payless and Charlotte Russe that sold cheap goods at low prices just couldn’t compete with the prices of similar merchandise sold online.
Consumers who like shopping brick and mortar stores, on the other hand, aren’t necessarily going to switch to buying cheaply manufactured private labels instead of trying their luck at “treasure hunt” shopping at TJX or Ross Stores.
In fact, TJX and Ross Stores’ sales numbers continue to climb. According to Seeking Alpha, both companies have a record of posting same-store gains including during the 2008 financial crisis.
“As of the latest fiscal year,” Seeking Alpha reports, “Ross Stores posted a four percent increase in annual comparable store sales — slightly lower than the six percent at TJX (but higher than the prior year: four percent vs. two percent).”
The main difference between the brick and mortar discounters that succeed and those that fail may be that treasure hunt retailers such as Ross and TJX offer customers a varied and changing assortment of brand name (off-season) merchandise along with value labels, while those that have fallen have not. The Ross’s and TJX’s of the world have also created shopping experiences, chaotic as it seems to some, that even Amazon has not been able to map.
- Is Shopping Online Really Cheaper? – The Balance
- TJX Companies Vs. Ross Stores: Looking for the Best Bet – Seeking Alpha
DISCUSSION QUESTIONS: What do you see as the primary reasons why some discounters are still succeeding against online competition while others are not? Which discount stores among the current crop do you see as more likely to succeed and which more likely to fail in the years ahead?