Outlets and other off-price stores may have been consumer hotspots during much of retail’s recent rough patch, but a new report is evidencing a slowdown in the sector this summer.
According to a report by financial services and research firm Cowen & Co., traffic to off-price stores have been on a downward trajectory in recent months, while visitation to outlet stores measured its biggest decline ever in the firm’s June survey of 2,500 consumers.
“Visitation penetration rates to outlet and off-price channels deteriorated from March to June 2017, with June representing the biggest year-over-year decline in outlet channel visitation penetration the survey has ever captured,” Cowen analyst John Kernan wrote in the report. “[Visitation declined] 750 basis points as 19 percent of survey respondents visited outlets in June versus 26 percent last year — which implies an even larger percentage change in potential traffic.”
Meanwhile off-price visitation penetration registered its fourth straight monthly decline, Kernan added.
As the fashion retail industry at large grappled with consumer shifts toward digital and experiential spending, experts noted that outlet stores and discount retailers seemed to land in the sweet spot for more price-conscious consumers who had recently become averse to spending on clothing and shoes.
Now Cowen’s report suggests that those consumer shifts may finally be trickling down to the off-price sector.
“Shopping mall visitation has been pressured for some time now, but the slippage in year-over-year monthly visitation rates to outlet malls and off-price is a more recent phenomena, perhaps reflecting shopper fatigue prior to back-to-school, an uptick in experiential demand associated with summer vacations, [and] a slowdown or shift in consumer spending around apparel and footwear.” Kernan pondered.
Popular off-price sellers TJ Maxx & Marshalls may have offered some earlier signs of a potential discount sector slowdown when their parent company — The TJX Companies Inc. — reported earnings in May.
TJX said comp sales at its discount stores improved just 1 percent during the first quarter, missing analysts’ bets for a comp improvement of 1.5 percent. Overall, Q1 sales gained 3 percent year-over-year, to $7.8 billion, but also missed Wall Street’s estimates for sales of $7.9 billion.
The company had also provided a disappointing outlook for the second quarter — predicting second-quarter diluted EPS in the range of 81 cents to 83 cents, below diluted EPS of 84 cents last year and significantly lower than analysts’ bets for EPS of 92 cents during the period.