It’s not just the threat of online retailers that department stores have to worry about. Brick and mortar off-price concepts such as TJ Maxx, Ross Stores, and Burlington Coat Factory are increasingly gaining market share and becoming bigger rivals.
In 2015 combined sales growth rates for JCPenney, Kohl’s, and Macy’s was down nearly a percent, while TJX, Ross Stores and Burlington soared by 7 percent.
*Graph shows combined sales for department stores (including JCPenney, Macy’s and Kohl’s) and the off-price group (including TJ Maxx, Ross Stores and Burlington) indexed to 100 with percentage growth rates applied. Data taken from relevant company accounts.
In the past year, nearly two-thirds of all consumers shopped at off-price retailers and visits to these stores increased by 4 percent, according to a report released by the NPD Group this year.
Fashion-conscious bargain hunters are no longer happy to buy high-street brands at discounted prices when they can get a better deal on designer products. Off-price retailers offer just this. By buying last season’s designer clothes at heavily discounted prices, they are able to sell them at low prices and still make large profits.
Their overheads are lower as stores are thinly staffed, banking on the fact that customers are happy to browse for bargains without any staff help. Online stores are also less of a threat to these companies as it is hard to replicate this kind of shopping experience online.
Department stores are finding other ways to compete with bargain shops, however. JCPenney, for example, plans to expand its private-label collection to set itself apart from off-price retailers and offer its own unique experience.
“People have loyalty to the private-label names. You might go to TJ Maxx for the treasure hunt but to get the Arizona original jean you have to go to JCPenney,” said analyst Steve Ruggiero at RW Pressprich & Co.