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Could Off-Price Players Emerge as Victors of 2020’s Retail Reckoning?

While it was tempting to look at the start of a new decade as a clean slate, 2020 has not materialized as the year of opportunity that many hoped it would be.

Though the past six months have largely been devastating for retail, which has limped through supply chain challenges and massive shifts in consumer appetites, United National Consumer Suppliers CEO Brett Rose believes the current climate could create openings for off-price retailers to shine.

UNCS, which connects a global network of retailers, manufacturers, warehouses and shipping service providers to facilitate the movement of consumer goods, works with many of the nation’s most prominent discount channels, Rose said.

Those retailers really hit their stride after the 2008 recession, he said, when shoppers were feeling more guarded about discretionary spending. Stores like Marshalls, Ross and TJ Maxx became safe havens for fashionistas who needed a pick-me-up without a scary price tag. Now, the current climate could foster “even more positive momentum from performance from apparel liquidation leaders” like TJ Maxx, according to Jeffrey Rayport, senior lecturer at Harvard Business School.

Over the past 12 years, brands have incorporated off-price into their overall strategies, and the payoff has been significant. “You can now go to an off-price retailer and buy a Ralph Lauren shirt that was specifically manufactured for them,” Rose said, dismissing the idea that these popular channels simply pick through overstock to fill their racks.

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Despite their skyrocketing popularity, off-price retailers have been notoriously slow at adopting e-commerce into their strategies, relying instead on a strong brick-and-mortar footprint to entice shoppers.

“Off-price retailers give consumers a great deal that can’t be replicated online,” Rose said. “There’s no denying that Amazon is a behemoth, but it can’t replicate the ability to treasure hunt.”

But during a pandemic that has shut down the world of non-essential physical retail, stores like Marshalls have doubled down on their DTC strategy. The retailer launched its website during the fall of 2019, and the site now offers a much more robust selection that mirrors its in-store offerings.

As stores begin to reopen, Rose believes off-price channels could be well-positioned to benefit. Many have started selling PPE like face masks, he said, giving shoppers one more reason to stop in.

“In the short term, you don’t want to go in and out of the stores in the mall,” he said, because of the increased risk of infection. “But if you can go into one store, and it has everything you need, you’re going to end up spending more in that location.”

Though flash-sale sites emerged out of the Great Recession, they might not be able to reassert their relevance this time around. During the financial crisis that birthed sites like Gilt, premium labels wound up with a “glut of first-line merchandise they needed to liquidate,” but no one “wanted to sustain the brand damage of selling at deep discounts either in their own stores or on their own sites,” Rayport said. “Nor did they want to see their premium brands showing up at TJ Maxx and Marshalls.”

Gilt, he added, wasted no time in pouncing on an “amazing, but time limited, premium inventory opportunity,” passing steep savings on luxury fashion along to cash-strapped, deal-hungry shoppers. But when the economy regained its footing, the flash-sale startup’s access to supply “dried up,” Rayport said, forcing the firm to diversify into other categories like travel and home furnishings to keep feeding customers a steady diet of deals.

But as consumer interest petered out, Rayport said the category had little room for four or five players to chase a market of less than $1 billion. The rest is history: Nordstrom purchased HauteLook, ideeli “stalled out and got sold,” and Gilt changed hands a few times but now is consolidated with Rue La La, he added.

Still, the economic malaise could rekindle interest in the flash-sale model, giving platforms like Gilt a moment to “relive their former glory,” Rayport said.

After the pandemic truly abates, Rose believes there will be a “huge surge” of product on the market for off-price retailers.

“Factories globally are still running, but retailers stopped purchasing,” he said. Goods have been manufactured, despite cancelled orders, and those suppliers must turn stockpiles of product into cash.

Off-price retailers will buy those goods directly at below-market prices, and will cash in on the great margins. As for whether consumers will be ready and willing to shop when that happens, Rose said he expects a full return to normalcy.

“I do think we’ll completely bounce back,” he said. “We forget about the elasticity of American consumerism.”

Additional reporting by Jessica Binns.