Retail has become more complicated. Let’s look at one of the significant trends influencing the new model; the explosive growth of the off-price channel. The Off-Price Retailers and the Outlet Malls have been around since the mid-70s.
The success of the original off-price retailers has prompted many of the traditional retailers to chase a share of this sizable opportunity. TJ Maxx and Marshalls now have over 2,000 doors combined while Ross has greater than 1200 doors. There are currently examples of traditional retailers like Nordstrom, who got in early, and others like Macy’s and Bloomingdales who have come late to the party. Nordstrom now has 118 full line doors compared with 194 off-price Rack doors and counting.
The model of the original off-price retailer has changed. It started as an efficient, cost effective, and low profile way for brands and retailers to clear excess inventory that was unsold or returned. Today the merchandise mix includes excess inventory and exclusive special cuts designed to avoid conflicts with full priced stores. The off-price offering is now comprimised of current fashion in full size runs. The brick and mortar off-price doors are complemented with an even faster growing e-commerce component. Flash sale sites like Gilt.com are layered on to create a sense of urgency. The traditional retailers watched as the off-price retailers promoted a value proposition by making comparisons to the former’s regular prices.
The rapid growth of the Off-Price Channel poses many questions:
- What is the long term effect on brand equity as the off-price channel continues to grow at a greater rate than the regular price channel? The 70% off savings story has to have a regular price reference.
- How many new doors can the off-price channel profitably absorb? Nordstrom, Saks Off 5th, Macy’s, Bloomingdales, TJ Maxx, Ross, and many others are on an expansion tear.
- Where will the healthy ratio of “regular price” doors to off-price doors settle?
- What is the impact of the growing off-price channel when the “regular price channel” gets a cold?