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.