Off-price retailers have one key advantage over their department store and full-line competitors — the treasure hunt experience is hard to duplicate online.
That’s the conclusion of a report from the Telsey Advisory Group on “The Hunt for Value – An Overview of the Off-Price Sector.” As the value-oriented consumer shifts discretionary dollars to the off-price channel, Telsey Advisory Group concluded that the everyday low-pricing model of off-price retailers gives consumers confidence that they are getting a great deal. And while new entrants such as department stores try to take a piece of the market, off-price retailers already have an understanding of the buying and flow of goods cadence that isn’t easily replicated.
According to the report, the “treasure hunt” is considered the greatest differentiator of the off-price model, and helping to enhance the “mysterious” shopping experience is both the way the product is purchased and the “lack of significant e-commerce penetration.” The report said: “The fact that it is tough to replicate the ‘treasure hunt’ in an online setting has actually been [an] underrated positive for the off-price channel,” and factors that support the models’ resiliency include the requirement that consumers must go into the store to browse and discover what’s available for sale; difficulty in comparing prices online, and margins tend not to be materially impacted from the ongoing investments in connection with an e-commerce platform.
Further, the Telsey Advisory Group report noted that traffic trends for the off-price channel are boosted by the quick turnover in merchandise. Off-price shoppers understand that unique items are likely to be sold out by their next visit, and this rapid sell-through creates a sense of urgency to “buy now” instead of later. And since the business model is based on an everyday low price, waiting for an item to go on sale is not a factor in deciding whether or not to buy.
The report also noted that with a consistent amount of available goods, companies have been able to maintain healthy levels of pack-away goods, while also improving the quality — and value — of what’s offered to consumers.
The report also presumed that demand growth would continue for the off-price sector, using personal consumption expenditures (PCE) for different categories to predict growth. The total PCE for apparel and footwear last year were 49 percent. The sector was also broken down by percent for 2016: women’s and girls’ apparel, 23 percent; men’s and boys’ apparel, 13 percent; children’s and infants’ apparel, 3 percent; footwear, 10 percent; cosmetics and perfumes, 7 percent; jewelry and watches, 10 percent, and luggage and similar items, 5 percent.
When comparing PCE with government retail sales data (GAFO sale reports), the Telsey report noted that the three leading off-price retailers have experienced a second consecutive year of accelerating comps of 4.6 percent in 2016, compared with 3.7 percent and 3.4 percent in 2015 and 2014, respectively. Telsey Advisory Group’s conclusion was that “off-price is ‘out-comping’ the competition and exceeding overall demand levels, largely due to traffic increases, whereas traffic at department stores has been in a perpetual decline.”