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?
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17 Comments on "Do treasure hunt experiences provide the key to discounters’ fortunes?"
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Founding Partner, Merchandising Metrics
“Treasure hunt” is foundational to all kinds of shopping, ranging from T.J.Maxx to Hermes. Surprise me. Delight me. Elevate my life somehow. I can’t think of everything. Bring some kind of unexpected treat into my life.
Principal, Retail Technology Group
But that is more likely to happen within the four walls of a store, no?
Founding Partner, Merchandising Metrics
Absolutely. The more senses involved the better.
Chief Executive Officer, The TSi Company
Principal, Retail Technology Group
As with many other past discussions, the behavior differs with the product category. Discounters will do better when the customer is just shopping or browsing because then the treasure hunt becomes part of the fun. If I need a special purpose battery, I don’t need to go on a treasure hunt. I will look for the cheapest price online and make the purchase.
Global Retail & CPG Sales Strategist, IBM
We’re talking about agility. Evolve with the trends to thrive. No surprises here.
President, Sageberry Consulting/Senior Forbes Contributor
There is a big difference between” buying” and “shopping,” the former being more task and mission focused, where price and convenience tend to dominate. Shopping is more emotional and experiential. Once we understand this it’s not surprising that e-commerce does disproportionately well in “buying” and not well at all in “shopping.”
The use of the term “discount” here is misleading. Online does well in plenty of commodity-oriented discount segments, hence Amazon’s large share there. The off-price industry thrives because of the treasure hunt.
Chief Customer Officer, Incisiv
TJX is an amazing story. Essentially no e-commerce play, no loyalty play, no personalization play – yet they continue to grow. They are succeeding because they have strong supplier relationships that enable them access to quality (for the most part) merchandise that their shoppers seek out. In some cases, not unlike outlets stores, they are working with suppliers for merchandise that goes straight to them. As I wrote in yesterday’s post the “hunt” is a real thing and there is a universe of shoppers that treat it as a sport. TJX continues to be the retailer to beat in this space.
Principal, Cathy Hotka & Associates
It’s easy to forget that TJX stores are expertly, relentlessly merchandised. Whether it’s pastels before Easter or nautical decor before summer, these store displays get as much attention as those in high-end stores. These stores are a treasure hunt, but eye-catching displays are the big difference between these leaders and laggards.
Managing Partner, RSR Research
They also array the product differently than traditional department stores. Really excellently run chain.
Strategy and Operations Executive
If there is one retail segment that is somewhat immune to the e-commerce onslaught, it remains the off-price retail sector. It’s all about the thrill of the hunt that keeps TJX, Ross Stores and other off-price brands relevant, and in such a growth cycle, regardless of any of the economic forces.
There are distinct customer segments that enjoy going to a Ross Stores several times a week, timed around the new shipments. The fact of not knowing what you are going to get each time you go to the store keeps you coming back for more. The off-price segment is truly unique, and their business model only will work effectively in-store.
While the actual stores aren’t so curated, to say the least, and its more of an organized chaos, the off-price customer enjoys the hunt for bargains. This is also true on the other side of the spectrum, the luxury sector, which is somewhat shielded from online shopping.
Managing Partner, RSR Research
Managing Partner Cambridge Retail Advisors
It is not easy for an online store to replicate the thrill of the hunt experience that successful off-price retailers have perfected. Consumers love the surprise deals they find and it is much more entertaining when they can see, touch and try on the merchandise. The treasure hunt mentality has spread across all age groups and socioeconomic groups, even very affluent shoppers, which is why we have seen upscale department stores open off-price branded stores (Nordstrom Rack, Macy’s Backstage and Saks Off 5th).
The success of the dollar store has also been driven by the treasure hunt and these high volume stores are some of CPG’s top sellers of products, which enables them to request specially sized products to fit within the margin requirements of $1 priced items.
The winners of tomorrow will be the brands that have successfully refined this product mix and shopping experience today – TJX Companies (T.J.Maxx, Marshalls, and HomeGoods), Ross Stores and Citi Trends.
Principal, KIZER & BENDER Speaking
There is a big difference in the shopping experience in the stores mentioned in the article. T.J.Maxx and HomeGoods are bright, stocked with fun merchandise, are signed well and easy to shop. Ross has good commercials but, other than price, there is nothing exciting about its stores. Payless sold fashion at low prices but the in-store experience was a bore.
I think the difference between brick-and-mortar discounters that succeed and those that fail is more than the treasure hunt – you can find that experience anywhere. Off-price stores that succeed do so because they aren’t run like second-rate stores; shoppers choose them because they are merchandised with care.
Retail and Customer Experience Expert
There will always be a segment of “computer jockey” shoppers that do as much of their shopping online for discounts and leverage the return policy. Those are customers that B&M discounters cannot win. What B&M discounters need is the assortment and new items coming through constantly for the shoppers who want to get out of the house and spend some time browsing and looking for things maybe before they visit with friends or go out for a meal.
Principal, VSN Strategies
I feel the need to echo Paula (again!), as her observations about “the cost of running a physical establishment” reveal that she understands far more about the economics of retailing than The Balance. Of course the costs of running stores are partly offset by their distribution efficiencies, while the costs of remote fulfillment and individual deliveries add costs to each transaction that are not subject to economies of scale.
With that off my chest, let me also add my voice to the chorus here that recognizes how stores enable a discovery experience that is not possible in the digital world. Cheap, low quality goods are never “treasures,” but good brands at discounted prices can be. TJX and DSW both understand this and they execute wonderfully. Ditto Stein Mart and Tuesday Morning.
Treasure-hunt shopping is for shoppers who can afford to purchase a bargain item when they come across it. It’s not about utilitarian acquisition.
Retail Thought Leader
Customers still shop mostly in stores. Well operated discounters still can pull in lower costs for customers and continued growth. It’s those that are unable to adapt to the customers needs (e.g. omnichannel) or have other baggage like debt or poor management that fall flat — like any other business sector.
Some top stores will continue to be the warehouse clubs, dollar stores, and niche players that offer more than just low price but also convenience and customer needs without sacrificing a solid operating model — Dollar Store, TJX, Ross, BJs, Costco, Sams Club, Walmart and more … far more successes than failures in this sector, especially because they have a larger demographic. Volume becomes key.