By Barbara Thau
NEW YORK–Off-price chains have been the second banana of home retailing, but their billing is moving up these days.
Retailers such as T.J. Maxx, Ross Stores and Tuesday Morning are gaining clout with home vendors as shoppers court bargains in a recessionary climate and department stores slash their inventory levels.
In turn, these emporiums of closeout merchandise are stocking their shelves with tonier goods, and in some cases, more current-season merchandise from vendors who appreciate the clean nature of the transaction.
Channel Growth, Weak Economy Drive Business
These retailers, which sell brand-name designer goods for up to 60 percent less than department and specialty stores’ regular prices—cultivating a treasure-hunt feel—are gaining appeal simply because they’re offerings vendors more and more critical mass.
And the off-price chains have become too large a retail channel for tonier home vendors to turn their nose up at, growing at a faster clip than much of their retail brethren.
“This class of trade has posted triple-digit growth in recent years, and January purchases were particularly strong,” said Kevin Clisham, director of sales for housewares vendor Chef’n, speaking of the housewares vendor’s business with the off-price retailers.
“There wasn’t a January retail report released that didn’t reference this group of retailers and the positive results garnered. In speaking with many of the respective buyers in Frankfurt at the Ambiente [trade show], business was good and open-to-buy was better,” Clisham said. “They came prepared to write orders.”
The weak economy is also feeding the sector.
“In the late 1990s, folks were feeling a little different than they are today,” Laura Champine, an analyst with Morgan Keegan & Co., told HFN.
Now, “the consumer is weaker and under more pressure,” she said. “There is more incentive to drive to a Tuesday Morning and sift through the shelves than a year ago.”
Retailers such as T.J. Maxx, and its HomeGoods chain “look ideal amidst economic uncertainty as consumers may seek the greater value offered by an off-price retailer,” Deborah Weinswig, Citigroup analyst, said in a research note.
And consumers will trade down from higher-priced department and specialty stores to save money in a tough economy, she said.
Consolidation in the department store industry in recent years has only helped fuel the off-price model.
When the off-price chains tell a home vendor “they’re going to buy a container [of merchandise], they’ll buy 5,000 dresses where Macy’s will buy 500,” a home vendor said. These days, “their buying power is a lot bigger than department stores.”
Vendor Pull, Upscale Merchandise
By definition, closeouts are goods that have been discontinued or are at the end of their production cycle, including “seconds,” or irregular merchandise.
And while closeouts remain the mainstay of off-price merchants’ assortments, that’s changing some. As the off-pricers gain clout with home vendors, they’re commanding more high-end product as well as more current-season merchandise.
T.J. Maxx says over 85 percent of its mix is “current-season” merchandise, and 95 percent is “first-quality.”
“They want to have what department stores have at a lower price. They’re not just looking for closeouts,” said Sal Gabbay, vice president of tabletop and housewares suppliers Gibson Overseas. “They want to beat department stores at their own game.”
Off-price chains have also benefited from a tough market for home furnishings as vendors are in surplus mode.
As the business navigates a rough patch at retail, home vendors are sitting on a surplus of goods, with department stores canceling orders that off-price chains are more than happy to scoop up.
At the same time, retailers have been keeping their inventory levels lean, which is playing into the hands of the off-price chains.
“Some of the continued weakness in the department store space [has translated] into better buying opportunities” for the off-price chains, Patrick McKeever, senior equity analyst for MKM Partners LLC, told HFN. What’s more, “there has been some consolidation among some of the vendors, which plays nicely into the off-price retailers’ strategy,” he said.
Weinswig wrote about Ross stores as an example.
“We believe Ross is well positioned to take advantage of better off-price buys given plentiful merchandise—considerable product dislocation as department stores cancel orders … providing stores with better brands and bargains,” Weinswig wrote in a research note.
“December was worse than expected. All of a sudden, the department stores thought, ‘we better start cutting back on spring merchandise now, and cancel those orders,’ ” said Mark Montagna, vice president and senior analyst for CL King & Associates. “There you go. There’s your current-season product” for the off-price chains, he said.
They are also securing more higher-end fare.
The off-pricers are “more entrenched with some of the vendors,” McKeever said. They’re getting “better brands more consistently and more higher-end brands.”
Also, as even luxury brands feel the pinch of the sour economy, “they still have to meet their sales and profit goals [and in turn] sell to T.J. Maxx, Tuesday Morning,” Montagna said.
A trip to a T.J. Maxx store in Manhattan turned up upscale brands across home categories.
These included Calvin Klein rugs; home textiles from Ralph Lauren and Tommy Hilfiger; tabletop from vendors such as Portmeirion; and housewares from Le Creuset.
Champine said Tuesday Morning secures even higher-end home fare than its off-price rivals, such as Donna Karan textiles and Waterford Crystal.
At Ross Stores, the home mix is comprised of more moderate brands and basic assortments, Mckeever noted. At about 20 percent of Ross’ mix, home has been a bright spot at the retailer and they are “more deliberately focused on the business,” Mckeever said.
Vendors say a benefit to doing business with off-pricers is that it’s “clean.” That’s because with the off-price chains, there are no chargeback abuses, vendors said.
“The difference with them is that you get paid,” said one textiles vendor. “They beat you up for the cheapest price, but they pay you.”
Indeed, T.J. Maxx says on its Web site that its buyers never return unsold merchandise to vendors.
A housewares vendor agreed. “It’s gotten so cumbersome to take returns back from retailers,” he said. But with the off-pricers, “you pay your bill and you never have to hear about it again.”