Off-price retailers are able to see such astounding growth because their business model allows them to be more agile than their full-price competitors. Off-price retailers stock their inventories from the overstock of other retailers – unsold stock that remains when there are cancelled orders, returns, or when buyers simply miscalculate how much stock they will need. Because they purchase this overstock at deep discounts, off-price retailers are able to pass savings along to their customers, often to the tune of 20-60% off the standard retail price.
Even as the economy has improved, off-price retail continues to grow. Researchers have attributed this sustained growth to shift in consumer mentality towards a “value-oriented” mindset. Experts argue that consumers on the whole have come to prefer a good deal over other factors such as prestige and status that used to have a more dominant role in driving clothing sales. Even relatively well-off consumers (defined as those with incomes greater than $100,000) are shopping at off-price stores more frequently than they used to indicating that this phenomenon is about more than simple economics. As TJX CEO Carol Meyrowitz said, “there has been a paradigm shift among customers [towards] value… regardless of whether the economy is weak or strong, value isn’t going out of style.”
Real estate plays a large role in the success of this market. Off-price stores have a relatively loose set of space requirements and are able to occupy vacancies in malls, shopping centers, strip malls, or standalone storefronts. In contrast, higher-end department store counterparts are often confined to operate in only larger spaces such as those in malls.
Shopping centers are glad to accommodate off-price retailers, and often seek them out as desirable tenants. As mentioned above, off-price stores generate more revenue per square foot than do department stores, making them more reliable tenants than department stores in many cases. As Andrew Graiser, co-president of commercial real estate firm A&G Realty Partners notes “[mall owners] know that know other stores near a TJ Maxx will do well.”
The spectacular growth of the off-price market means a tremendous new opportunity for those in wholesale closeout. As demand for off-price inventory continues to rise, the more occasions there are for off-price retailers to make profits.
With more of the market moving to off-price and more merchandise being offered to off-price buyers, there are more options than ever for buyers to pick from. Consumers benefit from this abundance of supply as well, enjoying cheaper prices at the register.