The off price retail model has seen tremendous growth in the fashion and apparel industry over the past decade. What started as discount retailers selling excess inventory has evolved into a multi-billion dollar business segment that now rivals traditional department stores. In this article, we will explore the factors that have contributed to the rise of off price and analyze its impacts on both consumers and brands.
The Business Model’s Appeal to Cost-Conscious Consumers
A major driver of off price retail’s success has been its appeal to cost-conscious consumers looking for name brand clothing, footwear and accessories at significant discounts, typically 30-70% below regular retail prices. At a time when household incomes have largely remained stagnant, off price chains like TJ Maxx, Marshalls and Ross give shoppers access to top brands without breaking the bank. This value proposition has resonated strongly, allowing off price retailers to steadily gain over the years.
According to research firm NPD Group, off price apparel sales reached $40 billion in the US alone in 2018, growing faster than the overall apparel industry. Consumers today are more interested in bargain hunting and view off price retail as an affordable way to refresh their wardrobes regularly with new styles. The treasure hunt experience of not knowing exactly what brands and products will be available has also kept shopping engaging and interesting for customers.
Evolution of Sourcing Strategies
While off price retail chains originally built their business on excess stock from other retailers, their sourcing strategies have evolved significantly. Retailers now work directly with some brands and manufacturers from the design phase to produce off-price exclusive merchandise. Collaborating upstream in the supply chain allows them to design trend-right styles and quality branded goods specifically made for their stores at attractive price-points.
This shift has blurred the lines between off price and traditional retail. With exclusive private label brands like Open Edit at TJ Maxx and Design Collections at Ross competing against popular national brands, customers now see off price malls more as a mainstream shopping destination rather than a bargain outlet. Stricter regulatory compliance on counterfeit goods has also boosted off price chains’ credibility with consumers.
Impact on Full-Price Retailers
The tremendous growth of off price retailers has impacted traditional department stores and brands in several ways. Department store traffic and sales have declined significantly as shoppers choose off price for better discounts on familiar brands. Brands face challenges maintaining their prestige image and recommended price points when their products end up in deep discount chains.
However, the off price channel also provides valuable outlets for excess stock that would otherwise be liquidated or destroyed. It allows brands flexibility to test new product lines and complement regular retail channels. When done strategically in moderation, off price retail exposure can also help strengthen brand awareness and trials among newer and younger customers. Overall, the rise of off price is compelling brands and full-price stores to be nimbler in managing inventory levels and demand forecasting.
Segment Growth & Store Expansions
Given their profitable business model and strong customer loyalty, off price retailers continue significant growth and store expansion plans. TJ Maxx parent TJX Companies was listed among top Fortune 500 companies in 2021 with annual revenues exceeding $40 billion. Ross Stores crossed the 1000 store milestone in the US in 2020. Analysts expect off price real estate footprint to double over the next decade through both organic store openings and potential acquisitions.
International expansion is another area attracting attention, with European s seen as ripe for the off price concept. While supply chain challenges and cultural preferences remain hurdles, Canadian TJX brand Winners and German Kik have found early success overseas. Overall, the off price segment has firmly established itself as a disruptive yet sustainable retail model appealing to spending habits of both present and future consumer generations worldwide. With no signs of slowing down, it will remain a highly competitive space for brands, retailers and customers alike.
- Source: Coherent Market Insights, Public sources, Desk research
- We have leveraged AI tools to mine information and compile it