Retail’s Walking Dead

The TV series The Walking Dead is a huge hit with television viewing audiences. Now in its seventh season, it’s the story of life after a zombie apocalypse, pitting the zombies against the survivors whose mettles are tested just to ,stay alive. Week after week, year after year, viewers tune in to see who’ll remain standing in a battle that often turns survivors into more dangerous enemies than the zombies who walk the earth.

It’s not a bad metaphor for the state of retail right now.

The zombies — the walking dead — are those who just don’t know yet the state of their misfortune and take solace from the fact that 90 percent of retail sales still happen in physical stores, so they’re still very much alive. That ignores, of course, that it’s dangerous to live in a world of “statistical averages” since big chunks of in some segments have been shifted online — books (of course), sporting goods, apparel.

Then there are the survivors — those who get that neither statistics nor time is on their side — and are fighting tooth and nail to make it to the other side of the on to offline shift.

One of those groups of survivors are the off-price chains — from T.J. Maxx to Burlington Coat Factory. These retailers are giving traditional department stores and big-box retailers (aka the walking dead) a run for their money.

These alternative stores, which run on a business model of purchasing excess products designers make but can sell and then reselling them at a discount to customers, are increasingly in popularity and expanding their retail footprint.

On top of that, off-price chains are able to operate without many of the same headache that face traditional retailers, The Economist reported. Dealing with deal-hungry shoppers works for them because they are always able to offer the brands consumers want at a discount.

Excess inventory, which is a painful cost of business for traditional retailers, have become the lifeblood of off-price stores. Not only do leftover products help these brands fill their racks, but they also enable them to keep merchandise rotating and prices cut deep for customers on the hunt for a good deal.

The off-price business is a $52 billion opportunity that just can’t be ignored.

Making Room For Growth

Back in 2014, T.J. Maxx hit a major milestone by officially surpassing Macy’s in terms of annual revenue.

The department store competitor owns a collection of smaller shops, including Home Goods and Marshalls, that have an even bigger footprint than the largest clothing shop in the U.S., another off-price chain called Ross.

While the walking dead are closing stores, T.J. Maxx, Ross and Burlington are opening more for business — roughly 300 U.S. retail locations in 2017 combined.

According to CNBC, about the same number of locations that department store giants like Macy’s, Sears and JCPenney plan to close.

T.J. Maxx alone currently has 2,800 stores across all of its brands in the U.S., with plans to add another 1,300 stores as part of its long-term growth roadmap.

Moody’s Investors Service report from August 2016 predicted the market share of the off-price segment will grow to nearly 10 percent of apparel sales by 2018, from 8.8 percent in 2015.

“The off-price incumbents are able to purchase high volumes of disparate goods from suppliers through their significant scale, flexible purchasing, strong vendor relations and adaptable real estate strategies,” the report said.

But with all that growth, will off-price retailers still be able to deliver the goods?

Many industry experts believe so.

Though some designers are purposely starting to send less of their inventory to off-price chains, such as Ralph Lauren and Hugo Boss, there are still plenty of others willing to step up fill the gap. Even when off-price chains are cut out directly by a certain company, they still have the option to acquire inventory from third-party sellers, Ronen Lazar, CEO of INTURN, told CNBC.

“Excess inventory is just a fact of the business,” Lazar said, noting that he doesn’t see the ability for off-price stores supply enough merchandise to keep customers coming back for more changing anytime soon.

“They’re going to continue to find brands to feed them,” Murali Gokki, a managing director in AlixPartners’ retail practice, added.

The Power Of A Good Deal

Though online shopping has definitely changed the retail landscape for brick-and-mortar businesses, eCommerce is certainly not “killing” physical stores by any means.

Yes, many consumers are opting for online but many are also still shopping in-store for a variety of reasons — one of those being cheap prices.

Brendan Witcher, a retail and eCommerce analyst at Forrester, recently told Mashable that discount stores are able to find success because consumers always know exactly what they are going to get from them.

A good deal.

By providing the “bargain-bin prices” that their more traditional competitors just can’t match, off-price stores have quickly become a go-to option for shoppers.

Even the threat of online merchants hasn’t impacted off-price chains as greatly because they have built out a niche for consumers that are looking to shop and find a good deal in-store today, versus having to order online and wait for a delivery.

For customers that desire to search through racks or dig up the best deals, these types of stores are a sure bet and offer an experience that’s not achievable in the same way when shopping online.

According to Richard Passikoff, founder of Brand Keys, though this type of business model isn’t as easy to pull off as it looks, being able to capitalize on the unsold products of other brands has enabled off-chain stores to offer value and pose a long-term challenge to others in the market.

“Everyone has tried to play the value game at one point or another,” Passikoff explained to Mashable. “But it’s value in terms of what things cost and what I perceive things to be and what I perceive them to be worth.”