What does it take to compete in an off-price retail world?


New research from The NPD Group is quite clear. Roughly two-thirds of all consumers who shop for clothes do so at off-price outlets. Their purchases represent 75 percent of all the clothing purchased across all of retail.
Drilling down, older consumers (45+) make up more than half of those buying apparel in off-price stores. Older Millennials between 25 and 34 make up about 16 percent. Each group increased its share of off-price purchases in the last year, according to NPD.
Shopping visits to off-price merchants increased four percent year-over-year in April. Roughly half of all visitors to these locations made a purchase.
“Consumers are clearly looking for better deals and they know if they shop at an off-price retailer they will get them,” said Marshal Cohen, chief industry analyst, The NPD Group, in a statement. “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.”
Many department stores, including Kohl’s, Lord & Taylor, Nordstrom, Macy’s and Saks, have opened their own off-price businesses as consumers have shifted their buying habits. Those moves, however, have not benefited each chain’s primary business.
NPD’s findings are important when considering that many chains are counting on apparel sales to help boost their sales and profits during the key back-to-school selling season.
Macy’s is counting on throwback fashions along with some do-gooding to help it boost sales during back-to-school.
The department store chain is pushing fashions for kids and teens that harken back to the nineties. Junior girls, for example, will find “grunge style” plaid shirts as well as distressed jeans and overalls. Macy’s is also planning a series of nineties-themed events in its stores to “prove everything old is cool again.”
Macy’s has also teamed up with Elton John and Lady Gaga to create the Love Bravery limited edition line of clothing and accessories. Promoted as perfect for back-to-school, 25 percent of the purchase price goes to benefit the Born This Way Foundation and the Elton John AIDS Foundation.
- Two-Thirds of All Retail Shoppers Shop Off-Price, Reports NPD Group – NPD Group
- Fashion Rules at Macy’s for Back to School – Macy’s Inc.
DISCUSSION QUESTIONS: Are off-price chains making department and specialty clothing stores irrelevant in the minds of the vast majority of consumers? How do you turn consumer attention away from off-price outlets if you run a department store or other full-priced business?
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19 Comments on "What does it take to compete in an off-price retail world?"
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Managing Director, RAM Communications
At what point does the off-price outlet become normal retail and the full-price outlet become premium retail? If about 75 percent of sales are through those off-price outlets, I’d say we’re there. This trend is analogous to the entry of Walmart into grocery 25+ years ago. Taking price away from the competitive landscape, successful supermarket chains moved to featuring assortment and customer service. The successful department and specialty clothing stores will do the same.
Principal, Mark Heckman Consulting
Ron makes an excellent point. When lower-priced outlets become the norm for the majority of the shopper base, then it becomes imperative for those that chose to compete on service, variety and shopping experience to invest in technology and associate training or they will likely not have an adequate value proposition to survive in a shrinking market environment.
Advisor, MyAlerts
You turn attention away from off-price outlets by doing a better job of alerting consumers to the deep discounts on apparel items of most interest before they make their way to the outlets. In working with the off-price outlet of one of the majors, we’ve found that by offering new apparel item alerts by specific fashion designers, 30 percent of the customers who use the outlet are net new customers, not in the CRM database. All the customers of this outlet return to the website five to 10 times more often than those on the generic email blast list. Again, if retailers would use personalization to identify the specific interests by designer, item, size, color, etc. of their core shoppers, and give each of these shoppers alerts for the ability to buy on discount before the items are shipped to outlets, that should be a win for the core store in getting shoppers in to buy and likely increase their baskets with more margin-rich items while in the stores (or online).
President, Max Goldberg & Associates
Many consumers are still feeling the pain of the Great Recession, as wages have not kept pace with the general market recovery. They want value when shopping for clothes and are finding it at off-price chains, where one sacrifices some of the selection for significantly reduced prices. In a way, the leading department stores have brought this phenomenon on themselves by opening these stores, as well as outlet shops. Until wages rise significantly, I don’t see this pattern changing. Consumers will shop where they receive value, and traditional department stores will literally pay the price.
Principal, Anne Howe Associates
Several years ago, my husband’s luggage failed to show for a golf trip on the Southeast coast. Try finding shorts at Kohl’s, Macy’s or even Saks in August. It’s 94 in Charleston, SC and the stores were showing corduroy and jackets. On sale. Duh.
So off to TJMaxx we went. Oh, and to Tanger’s outlet mall as well. Bingo. Everything we need in 90 minutes. On sale.
Our brains have been trained this way by the very retailers who now suffer from lack of shoppers. Is it any wonder why the tide is shifting?
Owner, Tony O's Supermarket and Catering
President, The Ian Percy Corporation
Principal, Your Retail Authority, LLC
President, founder and CEO Interactive Edge
Off-price clothing stores and online shopping are definitely making department stores less relevant. If department stores want to entice their customers to shop, they need to be more competitive and go back to focusing on the consumer by providing excellent customer service and keeping retail in stock. I will be curious to see the long-term effects of discount stores like Macy’s Backstage. I think this is an excellent opportunity. One that should have probably been implemented years ago.
Founder & CEO, ReturnLogic
I think it is important to note that the original intent of outlets was to liquidate unwanted or unsaleable inventory. As retailers realized the potential market and demand for heavily-discounted goods, they created chains of stores designated as outlets. So while the outlets may appear the same, one was out of necessity, the other for profit. As a result, customers have been trained to never buy at full retail and retailers are caught with declining margins and increasing competition (sometimes from their own brand).
Independent Board Member, Investor and Startup Advisor
Principal, Cathy Hotka & Associates
Anne Howe is right — retailers have trained consumers to shop for the lowest price. The question is how non-discounted retailers (think: Abercrombie & Fitch, or Eileen Fisher) will elevate the shopping experience for the customers who don’t like the idea of shopping at TJMaxx or Marshall’s. With the shift in customer loyalty, enhancing the store experience is going to be very important.
CEO, President- American Retail Consultants
Yes, off-price stores are diminishing the retail presence of department stores, as is the Internet and other price sensitive (and responsive) retailing models. The days of the department store have been numbered, and their demise is quickly approaching. Their model is an expensive, outdated model which needs to adapt to today’s price-sensitive environment or perish.
President, The Treistman Group LLC
First off, the data doesn’t say that two thirds of clothing shoppers are buying ONLY at off-price outlets. So if 75% of all retail clothes purchases occur at outlets we can see that outlets encourage more dollars to be spent than full-priced businesses. Wow!
Here’s the rub. Consumers are willing to spend more … but not at the full-priced stores.
It seems like a done deal to me. If full-priced businesses are not perceived to offer the value and variety available at outlets, why would consumers spend their hard earned (even harder to earn these days) dollars at full-priced stores? Stores that seem to offer great value while providing current and stylish options, e.g. Uniqlo, may have the answer. Department stores can experiment with sections devoted to those fashions and prices to see if their sales are enhanced.
CFO, Weisner Steel
If I understand the survey correctly, 2/3 thirds of shoppers shop at off-price ALONG WITH OTHER RETAIL; for some it’s all the time, for others once a year. To label all of them as “off price shoppers” — as if that’s all they are — is misleading in the extreme.
The answer for department and specialty retailers on how to attract customers is the same: have a compelling product … if there’s nothing remarkable about what you sell other than price, you’re always going to lose to whoever sells for less.
President, Protonik
Retail Strategy - UST Global
Managing Partner Cambridge Retail Advisors
Founder & Executive Chairman, Wiser
Department stores/full-prices businesses should focus on building loyalty by offering discounts or exclusive sales for loyal customers, adding value in other ways (service, selection, etc.). Also, you mention many department stores opening their own off-price businesses, but that they have not benefited each chain’s primary business — this is not surprising. I would be curious to see what top and bottom line impact those businesses have had though. (Is it taking business away from their primary business? Or is it attracting a different more value conscious buyer segment? If so, how profitable is that new segment/is it worth more investment?) Being middle of the line can arguably be the worst place to be (not a value retailer, but not a luxury one) since it’s more difficult to differentiate your value proposition.