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You Can Thank Millennials for the Off-Price Surge

Fueled by broad demographic appeal, off-price is looking at taking an even larger piece of the apparel shopping pie.

Both Ross and TJX ended Q2 above plan with Ross reporting 5-percent comp growth and TJX announcing consolidated comp store sales up 6 percent over the prior-year period. In both cases, the companies credit the growth to strong foot traffic.

The surge in shoppers shows why the off-price chains are in growth mode while their counterparts in other sectors continue to consolidate. Further, recent stats on how consumers shop illustrates why more locations might be a smart strategy.

A recent report from media delivery firm Valassis shows that the target consumers for off-price retailers are wedded to physical stores. The company, which surveyed more than 6,200 consumers who identify as value seeking, found that 96 percent shop in store when it comes to apparel, shoes and accessories. Further, 77 percent indicated they would continue to do so next year, with 15 percent intending to frequent stores even more.

These consumers said they were opting for in-store over online because they like to touch and feel the goods, they often need the items they’re shopping for immediately and they feel they get better deals through coupons and other offers in brick-and-mortar stores.

Recognizing the opportunity that value-focused consumers represent, the Ross retail group, which includes both Ross and dd’s Discounts, plans to grow from 1,600 stores to 3,000 locations over the 2,500 stores it had previously announced.

“This is based on our research that indicates we can further increase penetration in both existing and new markets and as a result of a number of factors that include increases in population densities and new or enlarged trade areas from suburban growth,” said CEO Barbara Rentler during the company’s second quarter earnings call.

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Though the plan does include expansion beyond the 38 states in which the company currently operates, president and chief operating officer Michael O’Sullivan said the focus will primarily remain on existing markets—with no plans for an international push.

As for pace, O’Sullivan said to expect the retail group to continue to add about 100 new stores a year, as it has been doing for the last few years.

The new growth plans will put Ross at about half of the locations TJX is targeting. The off-price leader is projecting to grow to 6,100 stores in just its current chains and countries.

CFO Scott Goldenberg credits the swift foot traffic—which has been increasing for 16 straight quarters—to the company’s ever changing product mix. “Our inventory turns very rapidly, and the freshness and newness of merchandise encourages and excites consumers to visit our stores more frequently,” he told analysts during the company’s quarterly earnings call.

Beyond traffic, TJX has identified another key stimulus for its growth.

“We are particularly pleased that we have been attracting a significant share of millennial and Gen Z shoppers among our new customers at each of our divisions. Importantly, the majority of new customers at Marmaxx are the younger customers, which indeed bodes well, very well for our future,” Goldenberg said.

Rentler of Ross also said young shoppers are an important part of the company’s mix. “We think we do well with the younger demographic, and we feel we do well with millennials,” she said.

The key to attracting this group, Rentler added, is identifying what works well with them. What’s she’s noted is younger shoppers aren’t as “married to certain brands.”

“I think that they’re a little bit more open to trying other brands and in some cases, labels that perhaps are young on the curve that eventually would become bigger brands,” she said, adding that brands still have their place. “They’re not quite as traditional, but the big brands are still the big brands.”