Off-pricers seem to have it all these days. Consumers are heading to chains such as T.J. Maxx and Ross Stores to save money while more premium brands are dumping their goods into the channel in order to flush inventories.
Not that off-pricers aren't feeling the impact of the rocky economy. On Wednesday, T.J. Maxx and Marshalls parent TJX Cos. reported fourth-quarter profit fell 17 percent partly because of the stronger dollar. But adjusted results still managed to top analysts' estimates due to higher-than-expected margins, according to Bloomberg News.
While also announcing cost-cutting moves to trim about $150 million in expenses this year, the company said it believes it is well positioned to weather the recession.
"Today we are gaining market share in a challenging environment with the strength of our value proposition," chief executive officer Carol Meyrowitz said on a conference call with analysts. "Value is where you want to be in this economy. In 2008 our comp sales were at the high end of the retail industry and our customer traffic remains healthy. We believe that our momentum will continue."
Ernie Herrman, senior executive vice president and president of The Marmaxx Group, said that the environment is giving T.J. Maxx and Marshalls access to brands they've rarely received in the past.
"The most exciting opportunity to me is new customers," said Mr. Herrman. "If we have customers walking in the door now that perhaps did not shop us before, when they see some of these brands at the values we potentially will have, I think that will be a key strategy for us, even longer term, to gain market share there."
Brian Tunick, an analyst at JP Morgan, told USA Today that stores such as T.J. Maxx are becoming outlets for apparel designers who are sometimes shut out at full-price retailers. That "plays up the consumer perception" that off-price stores are a place they can get high-quality merchandise, often at "30 percent to 40 percent below department store prices," Mr. Tunick says.
Mr. Tunick added that while Macy's could be potentially seen as grabbing customers trading down from luxury chains like Saks and Neiman Marcus, he believes many traditional department store customers are heading to off-pricers.
"You can clearly argue that the mid-tier department stores have no pricing integrity," Mr. Tunick said. "Nothing goes out the door at full price, and that plays right into what the off-pricers do."
Discussion Question: How do you think off-pricers are positioned for the short and long term? What are some challenges to the channel's continued growth?