1. Off-Price Retail: Coming to a Location Near You
By: Lucas Joseph
Despite an improving economic environment, a lasting, recession era preference for off-price and outlet
retail continues to drive up demand in the two sectors. Even six years removed, off-price chains, such as T.J. Maxx and
Marshalls, are outperforming a majority of the retail sector. For example, in 2014 Nordstrom Rack, which outnumbers
its full-line counterpart in total stores, out sold Nordstrom by more than $180 per square foot. The American
consumers “haven’t really let loose yet,” according to Mark Zandi, chief economist of Moody’s Analytics Inc. in New
York. Americans have been spending their discretionary income cautiously and that is largely influenced by the
lingering mentality of the recession. This cautious spending, however, has led to impressive sales numbers in the off-
price sector, including T.J. Maxx/Marshalls’ $319 sales per square foot and $11 billion in revenue across all Ross
brands.
To meet the increasing demand for off-price and outlet center retail, the two sectors have been aggressively
expanding. The ‘Big 3’ in off-price retail – Burlington, Ross Stores, and TJX – opened 230 stores, nearly 7 million
square feet, in the year 2014. Of these new stores, T.J. Maxx and Marshalls accounted for 81 of them. In addition,
Nordstrom Rack recently opened 27 new stores and Saks Off 5th
, with its 2014 additions, grew to make up 60% of all
Saks locations.
Off-price growth will not have peaked in 2014 either. As consumers recover their income, they are expected
to spend more while continuing to put their discretionary income into cost-effective options like off-price retail. Over
the next five years, the market share of the off-price sector is predicted to increase by 6.0% to 8.0% in the United
States. To foster that market penetration, nearly every off-price retailer, including the ‘Big 3’, Nordstrom Rack, Saks
Off 5th
, Stein Mart, Gordmans, Stage Stores, and Last Call by Neiman Marcus, are set to expand in 2015 and beyond.
Both Saks Off 5th
and Ross Stores have expressed long term plans to double their existing store count and TJX has set
their sights on exceeding 3,000 stores. In 2015 alone, T.J. Maxx will add 40-45 stores, Marshalls will open 35, Ross 70,
and Nordstrom Rack 27. Saks Off 5th
will add between 12 and 15 stores and tee themselves up for their goal of 100
total locations by 2017. Macy’s is even looking to join the party and will test out Macy’s Backstage, a newly created
off-price brand, in four locations.
A related trend in off-price retail is an inward movement to the urban core. Historically, companies have
strategically placed their outlet centers and off-price stores away from established shopping districts in order to
promote exclusivity and avoid diluting brand names. Given the steady rise in demand, however, outlet centers have
begun to work their way into urban markets and neighboring suburbs. Meanwhile, off-price retailers have found their
home in vacant mall spaces once held by the likes of JCPenney, Macy’s, and Sears.
Given this newfound proximity to urban cores and the sheer number of stores opening across the U.S., watch
for off-price brands, like Nordstrom Rack and T.J. Maxx, to play a major role in the retail landscape to come. Even as
the economy and consumer spending returns to normal, the prominence and proximity of off-price retail will make
the preference for practical shopping linger.