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June 13, 2025
Will Off-Price Retailers Send Traditional Department Stores Into Partial, or Even Full, Retirement?
It seems like everyone is in search of a deal nowadays — or at least, that’s what the statistics, and the actions of some prominent retailers, are saying.
The quest for the biggest-bang-for-your-buck appears to have solidified, according to a recent Retail Dive report penned by senior reporter Daphne Howland, with data suggesting that traditional department stores may not be equipped to service the needs of today’s (nor tomorrow’s) consumer versus the game plan laid out by off-price retailers.
Citing data from UBS analysts led by Jay Sole, Howland indicated that as of the first quarter of 2025, off-price retailers had increased their share of sales by 2.1% year-over-year to 66.6% on a rolling four-quarter basis. That figure represents an increase of 11.1% over the course of the past five years, adding additional context exhibiting striking growth in the segment.
Further, off-price retailers as a cohort swallowed almost 81% of the study group’s profit pool, a statistic that had improved by 4.45% YoY and an even more substantial 8.1% when set against pre-pandemic records, according to UBS.
“Off-price retailers have been major share gainers over department stores, in terms of both sales and EBIT dollars, over the past 10+ years,” Sole said.
Nordstrom and Macy’s Build Out Off-Price Footprint, While TJX, Burlington, and Ross Double Down in Similar Fashion
With Nordstrom opening its Rack stores at a brisk pace — stores which CEO Erik Nordstrom termed “a growth engine for our company,” as Howland noted — and Macy’s leaning heavily into Backstage store-in-stores to anchor its traditional department store locations, in addition to five standalone Backstage locations, it appears that established players are left with no choice but to adopt the off-price model if they wish to remain competitive.
Off-price retail leaders TJX, Ross, and Burlington are all engaged in expansion plans, with TJX opening 36 stores last quarter, Ross is on target to debut 90 stores this year, and Burlington slated to open 100 net new stores by the time 2025 draws to a close.
Burlington in particular recently provided some insight as to the centrality of not only the elephant in the room — the value proposition preferred by continually cash-strapped U.S. consumers — but also the notion of providing “elevated” product offerings to also capture middle- and higher- income shoppers trading down into off-price purchasing habits.
“We went after opportunities to elevate the assortment at all price points, paying close attention to the Need a Deal as well as the Want a Deal shopper,” CEO Michael O’Sullivan told analysts during the company’s March earnings call, per PYMNTS.
“We drove this elevation strategy throughout last year, but it was most evident and powerful in the fourth quarter. I interpret our 6% comp sales growth in Q4 (and grew 4% for the full year) as just the customer telling us that they approved of this strategy and really loved our assortment,” he added.
Off-Price Retailers Exhibit Higher Inventory and Rising Sales Numbers, Despite Tariffs
Finally, the UBS figures also told a bit of a sobering tale for the future of the traditional department store: Off-price inventory rose 13% YoY (versus 1% at department stores), second-quarter sales are projected to rise 6% (against a fall of 6% for department stores), and although off-price retailers aren’t as immune to the pressures enacted by ongoing tariff turbulence, they can frequently avail of a silver lining — purchasing offloaded surplus goods already hit by import fees — which insulates their bottom lines.
“Despite similar growth spreads, we believe off-price retailers’ gross margins will be more resilient than department stores as stronger sales should lead to better fixed cost leverage,” UBS analysts indicated.
“We believe off-price retailers are well positioned to continue taking market share over time. We think department stores remain challenged because of their weaker growth prospects,” the analysts added.
Discussion Questions
Will off-price retailers continue to take market share away from traditional department stores in the immediate future? Is there any way, without directly emulating off-price business practices, department stores can regain market share? If so, how?
Can experiential retail practices, omnichannel sales strategies, and targeted marketing efforts bring momentum back to the department store model? Which brands are most obviously capable of building interest in this manner, and which companies may be destined for closure?
Poll
Loading …BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Brad Halverson
Principal, Clearbrand CX
Mohamed Amer, PhD
CEO & Strategic Board Advisor, Strategy Doctor
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The answer to this lies with department stores. If they do nothing and continue to neglect their propositions, then yes, they will cede a lot more share to off-price players. If they pull their socks up and invest more in their propositions, then there is a chance of success. Kohl’s and JCPenney are most at risk here. Dillard’s and Nordstrom and the luxury players far less so. Of course, department stores with off-price businesses are able to hedge against this somewhat.
I’m not sure I’d give the reprieve to “the luxury players”: if by that phrase you mean Saks and Neiman Marcus – and other than perhaps Von Maur, I don’t know what else you might mean – I’ll point out, as I did the other day, that the same team that KO’ed Hudson’s Bay, with a combinatoin of excessive leverage and inept managment, also owns them.
I mean that luxury players like Neiman are not losing customers to off-price, at least not in significant enough numbers to do damage. What I don’t mean is that luxury department stores have a completely clean bill of health. They do not and they’re losing plenty of customers who are going direct to luxury brands.
Ah, we’re in agreement then.
Yes! And neither of us mentioned M*s!
I try not to mention them on Friday the 13th , they’ve enough challenges!
🙂
Haha!
100% agree the answer is determined by the Dept Stores, whether they want to stay & play or just follow and leave their fate to someone else
Department stores are already in partial retirement..so the answer is clearly yes. But it seems a narrow focus to single out off price: departmnt store’s problem is that everyone is taking market share from them. Hard to imagine a world without them? Then head up to our Fifty First state: with HBC’s demise, it’s essentialy happened.
Sit in the middle and everyone is going to take a bite around the edges, sometimes without even trying. Dangerous place to operate.
Traditional department stores operating in the middle, who don’t have or communicate their brand message in spelling out a clear value in either quality, benefits or price will feel the heat, losing more marketshare. The days of operating in the retail middle and getting by with being all things to all people, with broad unclear messaging are numbered.
Off-price retail formats will instantly have a leg up in clarity, because they have an imbedded promise and brand message in stark store design and value merchandising. These stores should continue do well for the next 3 years until the economy further builds and rebounds.
As Neil mentioned, the answer lies with department stores. Over the decades, they have primarily chosen not to fight, and when they did, it was with half-hearted propositions. The market share drain continues with more nimble and unencumbered competitors. Department stores can execute their current strategies exceptionally well, but they will fall short because of the mismatch with the reality of retailing. The path to thriving will not be by going premium (its not immune, see Saks and Neiman), going experiential (has been a buzzword for past couple of decades and Macy’s attempts don’t inspire), they can’t go niche as its meaningless when your business model and entire infrastructure is built for general merchandise at scale. The only real strategic option they have is to go off-price, but that requires a different set of core competencies than they currently possess.
The sad reality was announced for all to see 25 years ago when Dayton-Hudson changed its name to Target Corporation and subsequently spun off its stable of traditional department stores. Meanwhile, from 2005 to 2018, the Eddie Lampert REIT show played out at Sears as a financial value extraction mechanism, divorced from the fundamentals of retailing.
In-store shopping can be enhanced by department stores offering personalized services, such as personal shopping assistants and exclusive events. In addition, they can seamlessly integrate online and offline shopping experiences by investing in digital transformation and omnichannel strategies. The use of data analytics to better understand customer preferences can also attract more customers.
The department store model is in full retreat; we’ve been talking about here for a long time. The issues are much broader than just discounters; this is about relevance and value propositions and making needed adjustments as your customer base gets older. Department stores, for the most part, haven’t made the adjustments that attract younger customers and replace their core customer base that’s rapidly aging out.
If the department stores think that they can run their off price businesses with the same lack of merchandising discipline as some are using in their full line stores, they will not succeed there either.
Department stores have been dying (or dead) for decades. It is not a matter of Off-Price. It is a matter of everything. One can’t expect shopping priorities and behavior to stay the same over generations. Few things do.
The Golden Age of Department stores started its decline in the 1950s and continued downhill ever since.
I think off-price retailers are succeeding not just because of low prices, but because their model is built for how people actually shop today, fast, flexible, and deal-driven. Meanwhile, many department stores are still trying to stretch old formats into a new reality, and it’s just not working anymore.
There’s still potential for department stores to evolve. If they stop trying to be everything to everyone and focus on a few strong, unique propositions, whether that’s exclusive partnerships, better in-store service, or smarter assortments. In that case, they can still hold their ground. But without a clear reason for shoppers to return, more share will shift to retailers who already have one.