Leading up to this year's holiday season, a majority of retailers posted disappointing earnings. While Black Friday and Cyber Monday exceeded expectations, warmer weather put a damper on some early December sales, and it will be January before we know how successful the holiday season will be for retailers.
The one bright spot in retailing was the continued success of off-price discount stores such as T.J. Maxx, Ross and Burlington. Their sales and earnings have been steadily increasing for years, while sales in department stores such as Macy's and Kohl's have been stagnant. Ten years ago, 15 percent of general merchandise was sold by department stores; now that portion has fallen to 9 percent.
Shoppers are attracted to off-price discount stores because they offer value, experience and convenience. Off-price stores typically sell national brands for 20 percent to 60 percent less than traditional department stores. They promise shoppers the quality and value of national brands, but at prices shoppers can afford. According to a recent survey by Kantor Retail, 60 percent of all women shoppers routinely shop at off-price discount stores. That number increases to 74 percent for millennials, those born between 1979 and 1998.
Consumers' shopping habits have changed since the recession. They have become more price-conscious and are reluctant to go back to their free-spending ways. They are still wary of the economy and are not convinced that another recession isn't just around the corner. Also, all those promotions and discounts have trained consumers to wait for a sale before they buy.
While some consumers began shopping at off-price stores out of economic necessity, many love to shop these stores for the experience. Retail experts refer to this behavior as the "thrill of the hunt" or the "treasure hunt." Finding a great deal can be very addicting. Similar to a gambler, a shopper may not find the perfect deal every time but occasionally will hit the jackpot and find an unexpected bargain.
Some of the merchandise sold in in off-price discount stores is overstocked or returned merchandise, but approximately 65 percent to 85 percent is made specifically for the store. Off-price discounters like T.J. Maxx have the power and scale to negotiate deals with suppliers for made-for-store orders, which keeps their inventory fresh and fast. T.J. Maxx turns over inventory in 55 days, versus 85 days for other retailers. The speed of their inventory turnover creates a sense of urgency for shoppers. When shoppers find something they like in the store, they know they must buy it immediately because if they wait, it won't be there the next time they shop.
Convenience is another important factor. The top three off-price discounters have more stores than traditional department stores and are usually located closer to shoppers. TJX, the largest off-price retailer, operates over 2,600 stores in the United States under the names T.J. Maxx, Marshalls and HomeGoods, with plans to open another 2,000.