By Karen Talley
Off-price retailers including TJX Cos. (TJX) and Ross Stores
Inc. (ROST) are making inroads into the traditional turf of
department stores, a point driven home by strong sales during the
holidays.
The off-price retailers, which also include Stein Mart Inc.
(SMRT), are taking market share by offering virtually the same
merchandise as department stores, but at lower prices. The
off-price retailers generally do this by striking closeout or
clearance deals with vendors. They aim to offer prices 20% to 60%
below those of department and specialty stores.
The strategy appears effective, with the off-price stores
demonstrating their latest standout performance during the
holidays, lifting earnings guidance while many other retailers
struggled.
The increases for TJX, which operates T.J. Maxx and Marshalls
stores, and Ross came after both posted 6% growth in
comparable-store sales for the holiday month of December, each more
than twice the amount analysts expected. "These gains were on top
of our most challenging sales comparison of the year and
demonstrate the ongoing resilience of our off-price model," said
Ross Stores Chief Executive Michael Balmuth. Comparable sales grew
9% in the year-ago period.
Stein Mart, an off-price retailer that seems to be overcoming
difficulties experienced over the last several years, reported 5.9%
growth, almost three times expectations.
Off-price operators' same-store sales started outperforming
rivals like department stores and mass merchants around the time of
the recession. The momentum increased at the end of 2011, as the
presidential election approached and the uncertainty caused a drop
in consumer confidence.
Two of the department-store industry's weakest links are
especially vulnerable, said Paul Lejuez, retail analyst at Nomura
Equity Research. "We believe off-pricers have taken share from both
J.C. Penney Co. (JCP) and Kohl's Corp. (KSS) and continue to pose a
market share threat, given their better brands" at attractive
prices, Mr. Lejuez said.
Spokeswomen for J.C. Penney and Kohl's didn't respond to
requests for comment.
Macy's Inc. (M), the largest U.S. department store by sales and
one that is performing well, still looks over its shoulder at what
the off-price retailers are doing. "While not as directly as other
forms of retail, everyone who sells anything in a category sold at
Macy's is a competitor," said Macy's spokesman Jim Sluzewski.
In the case of Kohl's and Penney, both retailers are going
through tough times to begin with. Off-price retailers' taking
business only exacerbates the problems.
For their part, off-price retailers set themselves up in an
appealing way to vendors. They are typically willing to purchase
less-than-full assortments of items, styles and sizes in quantities
ranging from small to very large; they pay promptly; and they
generally don't ask for typical retail concessions such as
advertising; delivery concessions like drop shipments to stores; or
return privileges.
TJX sees value "as the combination of fashion, quality, brand
and price," spokeswoman Sherry Lang said. Add to that measure
effective marketing strategies and other factors and the result is
increased customer traffic, Ms. Lang said.
Stein Mart didn't respond to requests for comment.
The momentum should endure, said Mark Montagna, retail analyst
at Avondale Partners. "Right now, customers are looking for name
brands at a value price and these retailers have what the customer
wants."
Mr. Montagna also said the retailers benefit by always having
low prices "so you don't have to wait for a sale" and they have
better inventory turnover because they keep it low and frequently
replenish it.
Eric Freiberg, chief executive of SweepStreet, an online,
off-price jewelry retailer, sees stores like TJX and Ross, also
taking from the upper end, like Neiman Marcus and Saks Inc.
(SKS).
The reason, he says, is it became fashionable to be frugal
during the recession and that habit has stuck. Also, the off-price
retailers are getting in better lines of merchandise.
Mr. Freiberg also runs a brokerage, Quattro M Securities, and
has seen "a tremendous shift" of money coming from luxury retailers
to the off-price retailers. "It's an off-price world now," Mr.
Freiberg said. "The shopper that would only go to a department
store, today goes into TJX or Ross because of the brands they now
carry."
Off-price "once meant 'less-than,' say, a department store,"
said Sara Rotman, chief executive of fashion branding agency MODCo
Creative. "Now, they've become a completely socially acceptable
thing."
Write to Karen Talley at karen.talley@dowjones.com
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