Euromonitor’s retailing team recently had the pleasure of visiting a number of off-price stores in downtown Chicago. On-site inspection made for an enlightening look at a fast growing segment of retail, where products are plentiful and prices are competitive. The competitive pricing on a number of goods that are constantly turning over creates a treasure hunting atmosphere that is highly effective in today’s retail climate. That atmosphere was on clear display, along with category expansions and a notable private label presence, but it was the extra touches that were the most surprising, particularly because the retailers that used them happen to be considered best-in-class when it comes to off-price.
It’s like the internet, but in real-life
Low prices advertised both generally at Ross (left) and with a mind for name brands at Nordstrom Rack (right)
The power of off-price retail is the ease with which it can communicate the value of its offer and these stores are filled with pricing messages to reinforce that. Coincidentally enough, it looks very similar to the same reasons that people shop online too. First and foremost, the pricing is very attractive compared to more traditional store-based retail, so much so that the channel’s name even indicates this. The vast selection that is constantly changing is about the closest one will get to an endless aisle in a store. They are also making an effort to help shoppers with last-mile difficulties, especially for retailers that have made the decision to carry a number of large and bulky home goods. Delivery was an option at a number of stores we went to, and so long as purchase minimums are hit, will help shoppers associate the outlets with convenience which is in high demand today.
Home delivery signs at both TJ Maxx (left) and Ross (right)
Category expansion creates new reasons to visit and more things to buy
The expansion of the offline-version of the endless aisle bears further detail. Rapidly refreshing inventory has been an off-price mainstay for decades, but more recently the stores have used their increased cachet to expand into other product categories as well. Beauty and home goods sections seem more prominent along with whole new sections for packaged foods and pet products. Items that were once probably considered more as upsell opportunities seem to be shifting to legitimate categories of consideration for these retailers, with name brands and an emphasis for staying on trend. The packaged food aisle at TJ Maxx was filled with organic and health-oriented items. One way of staying on-trend is expanding categories that are trending.
Entire sections of shelves dedicated to pet product at Burlington Coat Factory (left) and packaged food at TJ Maxx (right)
The shift to private label
Private label brands at a discount at Neiman Marcus Last Call
One interesting component of off-price retailing that is less well known is the growing emphasis on private label at the two department store brands we visited, Nordstrom Rack and Neiman Marcus Last Call. At Sack’s Off 5th, private label is up to 25% of merchandise according to executives. This makes a lot of sense for more upscale banners whose shoppers are more likely to correlate the department store’s brand strength with higher quality merchandise. It also fits very well in the low-price atmosphere without crowding out space that shoppers at higher-end outlets might expect to be reserved for names brands.
Private label also give retailers their own advantages beyond the additional profit margin. Off-price buying is all about being opportunistic, and the capacity to fill shelves with your own product gives retailers the ability to walk away from the negotiating table if the prices aren’t good enough. As private label makes in-roads in most product categories thanks to the savings it can bring to average consumers and the benefits it has for retailers, it wouldn’t be surprising for more of it to spring up in off-price retailing.
Differentiation can come from in-store services
Considering how on-trend these stores are and how packed they were in the middle of a weekday, it is hardly a bold prediction to say that off-price competition is only going to get more intense. With Macy’s and J. Crew having created their own off-price banners in 2015 and Lord and Taylor jumping into the scene in November 2016, it’s unlikely to slow down anytime soon. Today’s value driven shopper has a ravenous demand for stores with consistently lower prices and it is causing a flurry of expansion in the channel.
A phone charging station at TJ Maxx (left) and an ad for tailoring services at Nordstrom Rack (right)
The biggest differentiators beyond the well-known culprits such as price and selection may very well be services which are possible considering the physical format of the stores. Getting people into a store these days is not as easy as it used to be. Creating a unique and useful in-store service helps a brand stand out. It is no surprise that the two stores that did something unqiue and valuable in their off-price outlets are also two of the brands that have seen the most success in the space. Phone charging stations in TJ Maxx and in-store tailoring and mobile check-out stations at Nordstrom Rack are services that customers can latch onto and give them reasons to return. With the off-price channel becoming more crowded by the year, it will be important to utilize these customer services to stand out from the competition.