Photo: Macy’s
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.
Discussion Questions
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?
Poll
BrainTrust
Max Goldberg
President, Max Goldberg & Associates
Zel Bianco
President, founder and CEO Interactive Edge
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.
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.
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).
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.
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?
This discussion is very similar to many others in the past, as consumers in every category are searching for extreme value. Except for a few pockets of the country, the rest of us are stuck in neutral income wise and are shopping with a purpose, and that translates to bargain hunting. Off-price clothing chains do not impress me or my wife, who is a champion of knowing what deals are out there, and she much prefers to load up on the Macy’s rewards and discounts before she heads out to the regular store, which has a much better selection to choose from. She does like Nordstrom Rack, but again the selection is limited, so for us we still prefer being patient and taking advantage of the amazing offers and going to the regular Macy’s. For me I shop Kohl’s, and just went online to order some stuff, as I got the 30 percent mystery coupon plus $10 off on $50, plus $10 off just for starters, and cleaned up on some nice stuff.
Regular price is insane and consumers know it, so the regular stores will continue to offer great deals if you are patient, plus the selection is much much better in my opinion.
“Grunge” is throwback? Feels like that was last month. I have to get out more.
Look, even the term “off-price” is weird. The price is the price. I guess the idea is that off-price means it’s cheaper than the price the manufacturer was hoping for. As happens so often retail, once again, suffers from self-inflicted wounds.
For some reason lately we’ve had several items here at RetailWire about the legitimacy and honesty of MSRP. Almost bought a watch yesterday — $69 — regular price $500! Then I found I could buy the same thing for $69 in all kinds of places and some said the regular price was $200. Consumers seem to conclude that MSRP is a fantasy, a made up thing hoping the buyer is rich enough not to care. Jos A. Bank used to put out those buy one get four deals and we all wondered how they can make money doing that. Well of course they’re making money and so the MSRP on each suit is deemed phony. It also conjured up images of children at sewing machines in some jungle factory. How else could they sell them so cheap and still make money?
Retail needs to get hold of this. We don’t trust or like banks. We don’t trust or like airlines. Hopefully we don’t add retail to the list. In our house off-price Kohl’s rules.
Let’s first start by distinguishing between off-price chains. Macy’s off-price stores are, for the most part, lower-quality goods. While Saks Off 5th is yesterday’s fashion. Not at all the same thing.
Many folks don’t mind buying yesterday’s fashion today. They aren’t the fashion-forward perhaps and don’t have to be wearing Donna Karen right off the runway. And let’s face it. While the goods are less expensive than Saks, they are a bit harder on the pocketbook than other off-price stores. But Off 5th will not make Saks irrelevant. It wouldn’t exist without the first-run clothing.
Macy’s and other off-price stores, on the other hand, could do just that if they don’t find their niche. I used to think of Macy’s and Lord & Taylor as go-to places for business suits that were reasonably priced. They were good quality, second-tier designer and good on the pocketbook. I would then use an off-price store to pick up my “get away with it” pieces to fill in my wardrobe.
For my 2 cents, there is still a market for quality clothing that is not designer as well as fill-in clothes. They can both survive if done right.
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.
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).
The term “off-price” is defined and imagined on the basis of a “full-price” paradigm that is no longer viable. Even if we take the term off-price outlets as a format, we’re still working with the old strategy that retailers ought to have regular price stores and discount stores (to move slow inventory). Nearly every store is a discount store irrespective of category or seasonality. Yes, it’s very difficult to create a high-end and off-price image under the same roof, yet in the early days of department stores they did just that with the “basement” offering deep discounts. The reality is that today’s consumers are sophisticated, opinionated, expect more for less and want it yesterday. Traditional consumer categories that are malleable to marketing efforts have gone the way of the dodo bird.
Today’s consumers have come to expect deals (as a key metric to how they define value) before they are willing to separate from their hard-earned money. The only exception and caveat I see is where the consumer seeks a differentiated retail experiences for which emotions and not product characteristics reign supreme and price concerns fade into the background.
Consumers’ easy 24/7 access to information, product comparisons including prices and digital offers have made the notion of paying full price a 20th century dinosaur — just note Amazon’s wild success to date. What’s surprising to me is that so called “off-price” shoppers represent only two-thirds of U.S. shoppers. Outside of the top 1 percent, there’s no motivation not to shop retail’s new pricing paradigm.
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.
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.
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.
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.
Two steps respond to discounting pressure:
Somehow it seems we’ve forgotten these basics. Sergio Zyman observed something like “In the absence of meaning, consumers will always choose on price.” The key is to return meaning to what you’re doing.
Unfortunately, many buyers have learned to rely heavily on discounts to drive traffic. But the more often they do that, the wider the door opens for discounters to take over.
That said, it should be remembered that discounting is a dead-end. Because it is not a defendable position. As soon as another company finds a way to undercut your prices, you’ve lost the battle. Never a good strategy — but it’s presence is the canary in the mine indicating bankrupt strategies within modern retailing.
Think it’s worth one clarification. Off price or outlet locations offer the “perception” of lower prices or a great deal. For many retailers, as the off-price business grew in significance, the ability to supply inventory from the “regular price” chain disappeared.
Today many outlets buy in their own products, expect little clearance from the main chain, or if private label they are placing back to back orders with the manufacturer for the same product, with “lower value” specification for the outlet run, or for literally the exact same product, where the only difference is the pricing (regular price) on the ticket. Consumers feel they are getting a great deal as it says “outlet” but in reality the cost structure of these stores allows for a little lower margin, and they play much less of a high low “sale” game.
I would be interested to see if anyone has done any research on pricing in outlets vs. regular chains to see if the reality is that the first marking in outlet is the same as the first discount in regular price, and therefore a comparatively consistent margin at both.
Today’s younger consumers are shopping discount brands and fast-fashion retailers because they don’t want to spend $200 on a sweater when they can get a similar one for $20 and wear it a few times and get a different style or color next month. Consumers are getting conditioned to expect everything to be on sale or they won’t buy it — and this is especially true for apparel. This is why we are seeing discount and off-price chains out-performing departments stores.
The disappointing sales in the department store category will continue to persist until they figure out a way to attract younger shoppers to brands that have traditionally catered to the baby boomers. Department stores need to make their stores a destination and appeal to consumers’ love for the theater of shopping. European retailers like Galeries Lafayette, Harrods, Selfridges and Fortnum & Mason are successfully attracting customers with special events, exclusive products, interactive games and other strategies that make shopping entertaining and fun. U.S. retailers should emulate some of these strategies to make their stores a shopping destination.
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.