3 Reasons Discount Retailers Are Dominating

Marshalls
A Marshalls storefront
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More and more consumers are turning to the discount channel for their footwear-and-apparel needs these days, and the reasons for the uptick may seem obvious: Who doesn’t love a good deal?

And with the post-recession consumer more bargain-oriented than ever, deal-digging certainly explains much of why Saks’ Off 5th, for example, is outperforming Saks Fifth Avenue.

But the appeal of off-price retailers — including chains TJ Maxx, Ross and Marshalls — extends beyond consumers’ relentless pursuit of a markdown.

One report, led by Citi Research analyst Paul Lejuez, offers three lesser-known reasons why off-price channels are winning in the current retail environment.

Department Stores Are Shuttering

After consecutive quarters of slumping sales, Macy’s Inc. announced in September that it planned to close 35 to 40 underperforming stores — representing approximately 1 percent of its total sales.

“And it’s not just Macy’s that has picked up the pace of store closures,” Lejuez noted in the report. “JCPenney closed 33 stores in 2014, and we expect them to close about 40 in 2015. Sears also continues to close its full-line stores and Kmart locations. We estimate closures from just these retailers combined could put $1 billion in sales volume up for grabs (and off-pricers have been good at capturing share).”

Among the reasons department stores have given for accelerating closures are: slowing tourism, redirecting more efforts to e-commerce and lower consumer demand.

Convenience

Citi’s team proved there is validity to their hypothesis that getting into the parking lot of an off-mall, off-price store, finding a parking space and making a transaction is typically less time-consuming than going to a department store in a mall.

“We decided to put our theory to the test and time a trip to TJ Maxx and Ross Dress for Less, versus Macy’s [at a mall],” the report said. “We timed the entire experience, from the moment we turned into the parking lot through the time we got back in our car to leave. Overall, the quickest was at Ross (11 minutes, 10 seconds), followed by TJ Maxx (12 minutes, 36 seconds) and then Macy’s (32 minutes, 44 seconds).”

It’s Just Business

According to Lejuez, vendors tend to favor working with off-price retailers over department stores.

“When a vendor sells to a department store, it’s not the end of the transaction. If the department store has trouble selling the goods, they will often come back to the vendor, asking for allowances/markdown money,” Lejuez explained. “With the off-pricers, there is no markdown money. Once the sale is made, the vendor has their money and the transaction is complete.”