Rise of Off Price Retail: Choosing Value over High Prices
The retail industry has seen many changes over the past few decades. One trend that has significantly disrupted traditional retail models is the rise of off price retail. Off price retailers, also known as value retailers, offer shopper’s high-quality branded merchandise at discounted prices every day. This business model has appealed greatly to budget-conscious consumers and has led to explosive growth for many off price chains.
What is Off Price Retail?
Off price retail refers to retailers that sell brand name fashion and home accessories at discounted prices typically between 20-60% lower than traditional retailers’ regular price points. The merchandise sold is often discontinued, irregular, out-of-season, or manufacturer overruns. By acquiring overstock inventory from other retailers, off price chains are able to consistently offer new merchandise at low prices.
Some prominent off price retailers include TJX Companies (T.J. Maxx, Marshalls), Ross Stores, Burlington, and Nordstrom Rack. These retailers have expanded rapidly in the past few decades to occupy a major share in the retail industry. According to the latest available market data, the off price retail segment was valued at over $50 billion in the US alone in 20201.
Reasons for Rapid Growth
According to Coherent Market Insights, below are the factors contributing to the surge in popularity of off price shopping in off price retail market:
– Value Conscious Consumers: Shoppers who want quality name brands at low prices have embraced off price retailers. In times of economic uncertainty, off price shopping offers great deals.
– Trend towards Experiences: Unlike online shopping, off price shopping offers an entertaining treasure hunt experience of discovering new products.
– Constant Inventory Refresh: Off price retailers acquire new inventory weekly, keeping stores feeling fresh versus normal retail cycles. Shoppers return more frequently.
– Omnichannel Experience: Stores have invested in seamless online and in-store experiences through features like buy online pickup in store.
– Rise of Private Label Brands: Off price chains like TJX are dominating with exclusive partnerships and private label brands appealing to younger customers.
Core Strengths of Off Price Retail Model
The off price model relies on a few key strengths to differentiate itself in the retail industry:
Agile Sourcing: Off price retailers have mastered the art of rapidly sourcing deals and surplus inventory. Their flexible supply chains allow fast inventory turnover to stock new merchandise weekly.
Low Overhead Costs: By operating in smaller stores, off price retailers achieve significantly lower operating costs than department stores. This enables undercutting rivals on price.
Limited Advertising: Word-of-mouth is the primary form of advertising for off price shopping. Advertising costs are just a fraction of peers’ expenditures.
Data-Driven Decisions: Off price leaders carefully analyze shopping patterns to stock appropriate quantities and gauge customer preferences regionally. Data fuels better decision making.
Strong Financial Performance: The off price business model has demonstrated robust and consistent performance through economic cycles, translating to high Total Shareholder Returns.
For more details on the market outlook, opportunities, and growth factors for the off price retail industry, refer to the research report published on Coherent Market Insights. The global off price retail market is expected to continue gaining market share away from traditional retailers. North America currently dominates driven by mature markets like the US. However, Asia and other developing regions are showing most promise for future growth as value consciousness spreads and more players enter new markets internationally. Key to further success will be adapting quickly to evolving consumer preferences through nimble sourcing, embracing digital and omnichannel strategies, and expanding diverse product assortments.