Off-Pricers Power Value Retail’s Mainstream Momentum

Off-price is on a roll, as value retailing shows no sign of losing the momentum gained among frugal consumers despite an economy that has been emerging from the recession and a sluggish recovery.

The success of off-price retailing, evident in recent financial reports from major players such as TJX and Ross Stores, has extended its influence beyond the trade channel, with developments at Bed Bath & Beyond and department stores.

Moody’s Investor Services is among those observers who believe off-pricers have bright prospects. In June, the firm issued a research report declaring that the U.S. off-price apparel and home products segment will continue to gain as consumers who developed a taste for bargain-priced luxury goods during the recession stay on the hunt for discounts. The off-price segment is expected to outperform the broader U.S. apparel and home sector for at least the next five years, Moody’s suggested.

Going Mainstream

With prospects looking good, more retailers are investing in off-price initiatives. Department stores are making the most conspicuous commitments to off-price retail formats.

Kohl’s, for example, has developed an outlet concept dubbed Off Aisle By Kohl’s, which it chose to locate in Cherry Hill, NJ, a shopping hub in the Philadelphia metro area.

Nordstrom has been rapidly expanding its Rack outlet store chain as it benefits from an off-price retail model that now delivers about a quarter of its sales. Hudson’s Bay Co., through its Saks Fifth Avenue division, has been growing its Off 5th outlet chain. Macy’s added Bloomingdale’s Outlet in 2010 and debuted Macy’s Backstage, an off-price operation that launched with three stores in New York City and Long Island.

Bed Bath & Beyond, meanwhile, has invested heavily in acquiring and developing operations that would expand its participation in the value retailing sector including Harmon, Christmas Tree Shops and Cost Plus World Markets. The home specialist doesn’t favor discussing its acquisitions in terms of retail channel, but executives do acknowledge that they will drive future growth by broadening the company’s appeal to consumers beyond the traditional core shopper, including those who are bargain oriented.

TJX’s Success Story

Response to TJX clearly demonstrates that consumers today like the idea of finding a bargain and will patronize retailers who they believe provide them with the opportunity to hunt down a discount.

In a demonstration of store concept appeal, the major TJX brands operated in the U.S., Marshalls, T.J. Maxx and HomeGoods, have grown sales and earnings with little or no e-commerce support.

HomeGoods, which suffered some sluggish times a decade or so ago, has turned into an exemplary success story. In the latest complete fiscal year, ended January 31, 2015, the HomeGoods banner flew over 487 of 3,395 TJX stores worldwide and 2,587 in the U.S. TJX net sales were $29.08 billion, up from $27.42 billion in the year prior, and net income was $2.22 billion, an advance from $2.14 billion in the previous year. HomeGoods sales were $3.41 billion, up from $2.99 billion in the fiscal year prior, and profit was $463.2 million, up from $386.5 million. Comparable stores sales gained 13.6% for the fiscal year after advancing 12.9% in the year earlier. Plans for the current fiscal year called for the addition of 40 HomeGoods locations.

Still, it’s not only TJX, but also the full array of major off-pricers that has enjoyed success in the recovering economy, even those, such as Stein Mart, Tuesday Morning and Burlington Stores, that had suffered some shaky spells over the past several years. Indeed, all of the major off-price retailers in the market today, including Ross as well as Big Lots, revealed significant earnings and comparable store sales advances in their recent financial reports.

For more on the growing influence of off-price retailing, see “Buying Powers,” the cover story of the September 14 issue of HOMEWORLD BUSINESS®. This issue also features the 2015 Top 100 Housewares Retailers.