News & Trends

How discount brands took over retail

Posted by: Ross Cooper Ross Cooper
on July 28, 2016

While some headlines proclaim retail doom and gloom, the fact is shoppers are still spending money due to an increase in wage growth, but are just being more judicious on where they spend it. Many thriving department store retailers are hiding in plain sight. In fact, these stores – call them discount, off-price, or value-based – are expanding as consumers hunt for value and the next great deal. What’s considered an off-price chain? Any store that sells name-brand apparel and goods for 20 to 60 percent below regular prices.

Throughout the U.S., brands like HomeGoods, T.J. Maxx, Marshalls, and Ross Dress for Less are seeing a surge in popularity. There are now 4,245 of these stores in the U.S., a 12 percent increase in the last year. People love shopping at these brands, which for years were seen as second-rung retail stores when shoppers weren’t as value-driven.

Many of these retailers became more popular after the Great Recession and they’re expanding: Ross Dress for Less and Marshalls are keeping up their ambitious plans to open new locations. TJX Companies, which owns Marshalls, HomeGoods (its home furnishings off-price chain), and T.J. Maxx, is planning on adding 5,600 stores, more than a 50 percent increase from its current footprint and will be using the space vacated by other downsizing retailers. Traditional department stores like Macy’s, Kohl’s, and Nordstrom have opened their own brand of discount stores, too. But why is this model so popular?

To answer that question, we have to understand why shoppers appreciate value, how shoppers’ perceptions changed in recent years, and the trend of “treasure hunting.”

Seeking out value

We all want a good deal. The current perception is these value-oriented retailers offer a better deal than most, and earnings reports explain the reality: T.J. Maxx is seeing strong sales and raised growth forecasts recently. Discount stores tend to buy overstocked merchandise at a deep discount (or negotiates directly with brands and designers) and sells them for considerably less than other sticker prices.

Department stores have felt this shift and have responded with value store brands of their own. Nordstrom Rack was one of the first brands in the value space established by a traditional department store retailer; other brands like Saks OFF 5TH, Macy’s Backstage, Find @ Lord & Taylor, and Kohl’s Off/Aisle are growing in store counts to meet value-driven shopping demand.

For these stores, “discount” isn’t synonymous with low quality: Shoppers are willing to pay a few hundred dollars for designer clothing, and they see their purchases as “buying at a good value” and not as “on the cheap.”

The Great Perception shift

There’s still a cachet to shopping at a luxury retailer, but for many shoppers the best experience tends to be the most cost effective too. Since the Great Recession, the public perception has shifted to shopping at discount stores to find great products at the lowest price.

These stores are viewed as great sources of value and quality products at reasonable prices. And shoppers don’t experience a price shock like they do when a traditional retail sale ends – these stores are discount retailers, after all, and typically do not incentivize through sales.

Today, the inventory in a discount store like T.J. Maxx mirrors the goods in a traditional retailer. But, off-price stores have the ability to pivot to reflect consumer tastes shift because they buy new product more regularly and can get it onto the sales floor quicker than more traditional stores, allowing shoppers to easily cycle through product.

The modern-day hunt for treasure

The allure of the good buy is what attracts shoppers to discount and off-price retail. To say it simply, shoppers never know what they’ll find on the shelf. Sure, you can find the classic white t-shirt or skinny black dress, but will you be lucky enough to get a designer dress for a fraction of the cost?

The search for a great deal, or treasure hunting, is what brings loyal shoppers back to stores like T.J. Maxx and Ross Dress for Less over and over again. The strategy works for a few different reasons. For one, shoppers know the great deal they’ve just spotted may be gone in a day or two, and for that reason they’re more inclined to buy it. What these retailers have found is even if shoppers don’t find a fantastic deal, they are still likely to make a purchase.

The hidden beauty in the treasure hunt is it’s impossible to do online – these stores rely on foot traffic and the deals last only a few days. That means shoppers are hopeful they’ll walk out with a great piece of merchandise, and they’ll return often in search of the next great find.

X marks the spot for great deals

Long ago, shoppers developed a great eye for spotting deals. Through the Great Recession into today, these treasure hunters seek out luxury-like products at value prices in the many off-price or discount retailers.

Because shopper tastes have shifted, these retailers – HomeGoods, Marshalls, and more – are growing in popularity and expanding into new markets. That trend should march on, as deal-hungry shoppers come back repeatedly and are willing to open their wallets for great products that they only have a small time window to purchase. The only question is, will they find another great deal?

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