ZEITGUIDE TO THE RETAIL APOCALYPSE
The four horsemen of the retail apocalypse are led by Amazon.com. But the other three? TJ Maxx/Marshall’s, Burlington Coat Factory and Ross Dress for Less.
These off-price retailers will open 300 new stores this year, even as fashion staples such Wet Seal, American Apparel, Bebe and The Limited have shut down. Department store J.C. Penney will close 138 stores this year; Macy’s is closing 68.
So why are off-price stores taking off as others struggle?
In part, consumers haven’t kicked the bargain-focused shopping habits they developed during the drawn-out recession. (From 2010 to 2013, visits to malls declined 50% according to research from Cushman & Wakefield.) People remain obsessed with getting a deal. “Shoppers today are less likely to lovingly describe merchandise and more likely to gush over savings,” says consumer psychologist Kit Yarrow. “In other words, the focus has shifted from what they’re buying to what they’re spending.”
But this bargain-obsessed cohort are hard-core shoppers. The two-thirds of Americans who shop at off-price retailers are responsible for an outsized 75% of apparel purchases across all channels.
Off-price stores also don’t bother with online sales. This avoids some high costs of operating an e-commerce business, including marketing, shipping and losses incurred from the high rates of returned items. It also maintains the sense of their brick-and-mortar stores as a destination.
Indeed, as e-commerce turned getting new socks and underwear into a one-click transaction, off-price retailers stand out by offering an entertaining “treasure hunt” shopping experience.
“In many cases, they have a smaller percentage of shoppers who are big online shoppers, and in particular … Amazon Prime members,” says Frank Badillo of MacroSavvy.com, which tracks consumer and economic trends. “As a result, they are somewhat less susceptible than department stores to losing sales to the shift online.”
A big expansion in the number of off-price stores, however, presents a paradox: Where are they going to get enough marked-down goods?
Surviving apparel companies have gotten savvier at anticipating demand and selling their leftover inventory online or at their own outlets. One notable success in this strategy is Nordstrom, which saw sales rise over 10% at Nordstrom Rack even as sales fell at its flagship stores.
To fill their racks, off-price stores are now manufacturing more of their own fast-fashion items. This raises the question: if too many labels say “Ross,” not “Ralph Lauren,” will it still feel like a treasure hunt?