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Off Price: Strength in The Face of Retail Challenges

Bracha Arnold
May 15, 2023
Off Price: Strength in The Face of Retail Challenges

Off-price retail has been a bright spot in the uncertain world of apparel retail. Shoppers continue to seek out ways to stretch their dollars without sacrificing style, and discount clothing retailers have been delivering.

We take a closer look at some of the major players in the segment – T.J. Maxx, Marshalls, Burlington, and Ross – to see how they are performing in challenging times. We also dive into location analytics for some smaller brands to see what might be driving visits to these stores.

Increased Inflation – and Interest

Interest rates have increased nearly every month since March 2022, and consumers are feeling the pinch. Still, certain retail categories have continued to perform well as consumers continue to spend money, opting to trade down and find more budget-friendly alternatives to their desired products. And perhaps no retail segment is more poised to benefit from these shifts in consumer sentiment than off-price, which has continued to perform well relative to the overall apparel category. 

January 2023 was a solid month for all brands examined, likely due to the comparison to last year's Omicron wave that affected the country at the beginning of 2022. And though plenty of retail analysts have begun to predict challenges for the retail apparel segment in the year's second half, only one of the analyzed retailers – Ross, which recently announced a goal of opening 100 stores in 2023 – experienced a downturn in visits. And since Ross experienced a particularly strong 2022 – outperforming other off-price leaders between January and April of last year – the brand’s 2023 visit dips are likely more a reflection of a difficult comparison to 2022 than of any real struggle.

There is plenty of room for these companies to continue to succeed – year-over-year (YoY) foot traffic to T.J. Maxx and Marshalls, both owned by TJX Companies, grew by 2.6% and 3.0%, respectively, in April, while visits to the overall apparel segment declined 16.2% in the same period. Compared to the overall dip in visits to clothing retailers, the outperformance of these companies suggests that more shoppers than ever are turning to off-price for their bargain fashion finds. 

Rock The Runway

Fashion-conscious off-price shoppers might be heading to one brand in particular. The TJX empire, which includes apparel, home, and sporting goods, tends to cater to slightly higher-income visitors than other off-price brands. And the company also operates over 100 designer-focused off-price T.J. Maxx stores called T.J. Maxx Runway. While the store concept has been around for over 15 years, it made headlines recently when celebrity stylist Law Roach announced his collaboration with the brand after his departure from styling. 

T.J. Maxx Runway stores feature a higher concentration of designer brands and are often the destination for savvy fashionistas looking to pick up a unique look for less. And with customers, especially the coveted Gen Z cohort, continuing to show interest in luxury fashion, the Runway stores are poised to benefit. 

Already, T.J. Maxx Runway stores are seeing higher YoY growth in visits per venue than traditional T.J. Maxx stores. April visits per venue to Runway stores showed 4.0% growth YoY, while regular T.J. Maxx stores experienced 1.4% growth. With TJX planning on adding 150 new stores to its fleet this year, focusing on adding more luxury off-price Runway stores may be a way to ensure its foot traffic and sales remain high.

Smaller Shops Expanding

Another off-price brand that's been making headlines lately is Gabe's, a Virginia-based discounter serving the Mid-Atlantic, Midwest, and Southeast. The company recently announced its acquisition of Old Time Pottery, a discount home decor retailer. The company plans on merging and integrating the two brands, increasing Gabe's fleet to nearly 170 stores across 20 states.

Location analytics data for Gabe's highlights off-price apparel's strength in challenging economic conditions, with YoY visits performing admirably. While not all months analyzed experienced growth, most visit gaps were minor, especially compared to the strong off-price retail performance that characterized much of 2022. Old Time Pottery's home decor collection can be a valuable addition to Gabe's home goods section, and the increased assortment of those products may help drive foot traffic to Gabe’s.

Off-Price: Popping Off

Off-price continues to exceed expectations and perform well amidst a challenging retail climate. With economic conditions difficult for many, stores that offer a bargain look at steeply discounted prices may be well-positioned to benefit from consumer trade-down.

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