The end of easy growth is coming into view for the off-price giants.

This story first appeared in the April 29, 2015 issue of WWD. Subscribe Today.

Consumers are still flocking to TJX Cos. Inc., Ross Stores Inc. and Burlington Stores Inc.’s 4,859 North American doors to engage in some fashion treasure hunting and take advantage of branded bargains. But competition from department store spin-offs, e-commerce players and frisky fast-fashion retailers is growing.

And the point of store saturation — once more than a decade off — is drawing closer. It’s a set of competitive challenges that’s forcing the three major U.S. off-pricers to shift their strategies, with some trying to solve the e-commerce puzzle.

“It’s obviously a big market, and there are already competitors like Nordstrom Rack and Saks Off 5th, which are getting big investments from their owners,” said Scott Tuhy, vice president and senior credit officer at Moody’s Investors Service. “But off-price is simply too big an area to ignore now.”

Including home goods, Moody’s sees off-pricers expanding 6 to 8 percent annually in each of the next five years and outperforming growth in the broader apparel sector by 4 or 5 percentage points.

Macy’s Inc. wants to get a bigger part of that growth and is piloting an off-price concept for its namesake division to complement its Bloomingdale’s outlet business.

Tuhy said Macy’s off-price venture wouldn’t have a material effect on the retailer’s results — or on the competitive landscape — any time soon. But he does view the venture as significant.

“It not only shows the attraction of the off-price space, but the way in which Macy’s existing scale and deep vendor relationships, like those at Nordstrom and Saks, make it immediately viable and something we’ll need to keep an eye on,” he said.

The off-price market leaders are hardly lacking in such relationships and have made good use of them.

Carol Meyrowitz, chief executive officer of TJX, has put the number of her firm’s suppliers at 16,000 while Ross, in its most recent annual report, put the figure for its Ross and dd’s Discounts stores at 8,200. Last year, TJX’s sales passed $29 billion, with its HomeGoods brand and growing European presence helping it to move ahead of Macy’s $28.1 billion, while Ross topped the $11 billion mark and Burlington grew to $4.8 billion.

Off-price retailers’ U.S. sales in the 12 months ended in February were up 2.5 percent to $23.2 billion, according to The NPD Group Inc. But that improvement was easily eclipsed by two looming threats: the 23.6 percent growth rate of online pure-plays and direct mail, to $9 billion, and the 6.1 percent growth of manufacturer-owned stores to $7.9 billion.

“Consumers are clearly looking for better deals and they’re taking them where they can get them,” said Marshal Cohen, chief industry analyst at NPD.

The consumer expert said the robust expansion at pure-plays and manufacturers’ stores is indicative of a shift in shopping behavior, as well as the off-pricers’ generally slow and loose embrace of online shopping.

“There are a lot of reasons for [the e-commerce reticence], including the need for discretion with their suppliers, but the off-pricers haven’t done a good job online, and they’re competing with stores that are heavily geared towards promotions and communicating their discounts to customers’ e-mails and smartphones.”

Flash-sale sites, such as Rue La La and Gilt Groupe, have shoppers racing against the clock for bargains, duplicating some of the excitement of shopping at an off-price store — where consumers never know what they’re going to get. But the future of off-price online is still very much up in the air. The question is to what degree the sector’s primary players, which built their empires with bricks and mortar, aggressively chase online business.

“The flash-sale sites haven’t managed to do it profitably,” said Stifel Nicolaus analyst Richard Jaffe. “TJX is trying some things that are showing some promise, and they like the idea that customers who buy online may bring it back to the store, where they might just participate in some in-store treasure hunting, but they’re generally still searching for a way to duplicate the hunting experience online.”

TJX bought off-price Internet retailer Sierra Trading Post in late 2012 and ceo Meyrowitz said had seen “great progress,” with e-commerce weighing in at “just over” 1 percent of sales after about a year in the game. Burlington also has an e-commerce site, but Ross does not.

The off-pricers’ success so far — and their growing tendency to attract competition from department stores and others — has convinced Matthew Boss, analyst at J.P. Morgan, that the once wide-open sector could become saturated in the U.S. — at least from a brick-and-mortar standpoint. The analyst recently shifted his view and said that saturation point was 10 years off, not 13 or 14.

The clock is ticking.

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