Want to know where all the apparel shoppers are? Go to TJ Maxx, Ross Stores, Saks Off 5th or Nordstrom Rack.
As department and specialty stores struggle with fickle consumers who seem bored by their offerings and would rather spend on experiences, the off-price channel continues to thrive. In fact, off-price shoppers represent two-thirds of all consumers and are hardcore apparel purchasers, accounting for 75 percent of apparel purchases across all retail channels. That’s according to The NPD Group’s receipt mining service Checkout Tracking, which analyzes receipts and follows consumer purchasing behavior over time.
While not an especially loyal group, off-price apparel buyers tend to jump around to multiple off-price retailers, and other retail outlets, seeking the best bargains. And they don’t necessarily need to purchase the latest runway fashions, as the merchandise is generally a season or two old, or is made specifically for the off-price channel.
Consumers aged 45 and older represent more than 50 percent of off-price apparel buyers, according to NPD’s Checkout Tracking. This age group — along with older Millennials, ages 25 to 34, which represent 16 percent of off-price apparel buyers — increased their share of off-price apparel purchases.
“Off-price retailers are resonating with fashion and cost-conscious consumers alike and are stealing department store business for good reason,” said Marshal Cohen, chief industry analyst of The NPD Group Inc. “Off-price is second only to the online channel in terms of growth rate.”
The off-price shoppers range from light off-price buyers (buying at off-price retailers once a year), to superheavy buyers (buying at off-price retailers more than 12 times a year). In addition to retailers already mentioned, the contingent includes such stores as Neiman Marcus Last Call, Burlington Stores Inc., Macy’s Backstage and Marshall’s.
According to NPD’s Shopper Insights Service, shopping visits made to off-price retail stores — whether or not a purchase was made — increased by 4 percent in the year ending April 2016 compared to a year ago. In the same period, off-price retailers converted 50 percent of the shopping visits to their brick-and-mortar stores to a purchase.
“Consumers are clearly looking for better deals and they know if they shop at an off-price retailer they will get them,” Cohen said. “Apparel shoppers are finding just what they want at off-price retailers at the right time and at the right price, and that isn’t always the case with department stores.”
Cohen said the appeal in off-price stores is price, comfort and brand names for less. “We’ve certainly entered a time where a fashion trend means less today than it ever has before. It’s more about lifestyle dressing than it is about the right color, or the right pattern, shape or silhouette. It’s more about what do I need, what do I want, and is it a good price for me to buy it at? That’s where the priority is,” he said. “The fact is that every major department store — Neiman’s, Nordstrom, Saks, Macy’s and Bloomingdale’s — has recognized the need to get into the business, rather than giving it away to the Marshall’s and the TJ Maxxes. They decided to get into the game, rather than be left out.”
Furthermore, he noted that the older customers recognize there’s been value in those stores for a long time. “When the Millennial shops, their priority is based on need now, want now and image. When you take image out of the equation, it certainly does make sense to shop in these more value-centric stores,” he said.
These stores now have the merchandise made for the Millennial age group and it isn’t just overstock, or leftovers and remnants. “Something like 82 percent of the merchandise is billed for these stories directly. They’ve developed proprietary labels for their outlet stores, just like they did for their own top-end stores,” said Cohen.
Arnold Aronson, partner and managing director of retail strategies at Kurt Salmon, agreed that the popularity in off-price shopping is rooted in where people are spending their money today and where they’re getting the most value for their money. Millennial consumers, as well as other demographics, are spending their money on other things besides apparel. They’re not only spending on pleasurable activities; technology, such as mobile devices, gaming and other entertainment, but are also paying down college loans, he said.
“Clothes are issues of need, rather than wants. People can shop out of their own closets, unless it’s something so compelling or new fashion that they must have,” said Aronson.
He said customers today are addicted to buying clothes off-price and most customers are less concerned with having the latest fashion than looking good and having something that fits their style. Nordstrom has about 200 Nordstrom Racks and 121 full-price stores, while Saks Off 5th has close to 100 stores. “That’s a business strategy you can’t argue with,” he said.
Meanwhile, Ross Stores Inc., Burlington Stores Inc., and The TJX Cos. continue to be Wall Street’s retail darlings. TJX, Ross and Burlington all delivered strong sales growth in the first quarter, outperforming such department stores as Macy’s and Kohl’s. Department stores are finding themselves not only facing intense competition from off-price retailers, but strong online retailers such as Amazon.
Ira Boruchow, analyst at Wells Fargo, said last week, “Our quantitative gauge of investor sentiment shows that off-pricers continue to lead with Burlington Stores Inc., Ross Stores and TJX as the ‘most-loved’ retailers in our universe, likely given the greater uncertainty following Brexit.”
According to Wells Fargo’s research, Burlington experienced strong sales in misses’ sportswear, home, beauty, youth apparel and shoes in the first quarter, and the company looks to expand home, beauty and ladies apparel.
Rick Snyder, an analyst at Miller Tabak + Co., said, “Off-price retailers utilize the retail productivity loop to drive traffic into stores and produce positive comps.” Snyder believes that Ross’ ability to drive traffic through its attractive merchandise obtained through opportunistic pricing will justify a higher price multiple on the stock.
As reported in the 16th annual back-to-school forecast from Consumer Growth Partners, a handful of specialty and off-price retailers will thrive this season. Craig Johnson, president of the consulting firm, predicted TJX Cos. Inc. and Primark among the winners. The department store sector is expected to contract, with a 7 percent decline predicted as traffic exits the mall and “as department stores struggle to make themselves relevant to today’s new generation of shoppers,” Johnson said.