Why Off-Price Retailers Are More Than Just Surviving In The eCommerce Age

Why Off-Price Retailers Are More Than Surviving

It’s a tale of two kinds of brick-and-mortar retailers amid the rise of eCommerce: Some traditional department store chains like JCPenney and Macy’s are shuttering stores, as some retailers with other business models are more than surviving. TJX, the owner of off-priced retailers like T.J. Maxx, is “growing steadily” in the words of the Los Angeles Times, and has brought in $36 billion in yearly sales. But even in an age where online retail sales are set to exceed $700 billion by 2022, analysts believe that only roughly 2 percent of TJX’s sales are made via eCommerce channels.

To stock its brick-and-mortar stores, TJX has an army of 20,000 vendors around the world to bring brands like Steve Madden, Ralph Lauren and Nike to its store shelves. That process is done rather fast, with a logistics team quickly moving product to the company’s locations. It happens at such speed that one industry observer even told the paper that the company’s turn is more akin to a supermarket than a department store. (The latter kind of store, for instance, typically has its holiday merchandise figured out many months in advance.)

Discount retailers like TJX operate differently, as they purchase the inventory that is left behind when retailers cancel orders or brands have a surplus of a particular product. There appears to be an inherent advantage to this strategy: A retailer like TJX can respond to consumer trends much faster, a benefit that the company’s president and chief executive officer cited

In a November conference call with analysts. TJX President and Chief Executive Officer Ernie Herrman said, “We are nimble in the marketplace and can buy close to need to capture additional sales when consumer trends are strong. Our flexible supply chain and store format enable us to change up our floor space to expand hot categories and hot brands so we can deliver shoppers more relevant, on-trend merchandise.” He added that the company plans to bring its footprint to 6,100 stores around the world.

By bringing this approach to these stores, the company can provide a wide selection of items for consumers to turn over to find hidden treasures. D.A. Davidson & Co. Senior Brand Apparel Analyst John D. Morris said, “If consumers go into the store and put in a little effort to find that diamond in the rough, there is an endorphin rush when they find a great brand at a great value. That’s what keeps them coming back. It’s a formula that works.”

The Off-Price Discovery Model

That same focus on looking for treasure is also behind another off-priced retailer, Five Below. Like TJX, the retailer is thriving even in an age of Amazon and eCommerce, according to a Wall Street Journal article from November. The retailer, too, is bucking trends in its retail footprint: As many retailers shutter their stores, the paper noted that Five Below “can’t seem to open them fast enough.” It was reported that the retailer planned 750 locations by the end of the year, as Sears is planning to close stores with its bankruptcy and Lowe’s had store closures in the cards, too.

With a bevy of different items, the store is, in effect, a place for discovery, like TJX. Five Below Chief Executive Joel Anderson told WSJ at the time, “When you walk into one of our stores, you will discover things you didn’t know you wanted. It’s like a treasure hunt. We’re the T.J. Maxx for kids.” The store doesn’t focus on consumer necessities like laundry detergent or toothpaste, but is geared toward the kinds of things that modern-day consumers would see on YouTube, such as “squishies,” a type of foam toy.

Five Below also shares another similarity with TJX: It doesn’t place a big emphasis on eCommerce sales. In fact, WSJ reported that the company’s “eCommerce sales are so negligible the company doesn’t break them out; shipping often costs more than the entire purchase.”

Five Below and TJX Companies suggest that offering customers a space for discovery can be a way for brick-and-mortar retailers to more than survive in the age of eCommerce.