The expansion of off-price retail will help create a drag on sales and lead to a tougher fiscal 2018 for a sector that has outperformed other models in recent years, according to a Wednesday note from Wells Fargo analyst Ike Boruchow, cited by CNBC and Benzinga.
Because of its major expansion in recent quarters, with new stores and new banners, TJX (owner of TJ Maxx, HomeGoods and Marshalls and new brand Homesense) could be particularly hard-hit by the slowdown, he said, though Ross Stores and Burlington could also suffer. Wells Fargo downgraded TJX from "outperform" to "market perform" and lowered its price target from $76 to $72, according to Benzinga's report.
However, Morgan Stanley analysts in a December report wrote that they expect off-price sales to keep growing, mainly at the expense of department stores. They noted that despite good economics for consumers, shoppers are still saving more and spending more on experiences than on retail goods. Moreover, their profits are better protected from e-commerce expenses compared to department stores and specialty retailers trying to compete with Amazon online. Moody's Investors Service has also written that the discovery inherent in off-price shopping will continue to fuel off-price retail, which will see operating income growth of 5.4%, besting most of the overall sector.
Off-price retailers have been the bane of department stores in particular, poaching from their merchandise with nimble supply chains and, in the case of TJX especially, buyers with a keen eye for emerging style trends. But, at least in some quarters, the bloom may be fading from the rose.
Top players in the space, including TJX , Burlington and Ross Stores, continue to rely on (and grow) physical stores. In the process, they foment the treasure hunt atmosphere, which JPMorgan in September noted is helping them to a great extent. JPMorgan analysts saw solid fundamentals like a robust merchandise pipeline, a healthy consumer base and plenty of runway for brick-and-mortar expansion all translating to $18 billion to $19 billion of incremental sales for off-price stores by 2021.
Already ambitious expansion, particularly on the part of TJX, could dilute that growth, but the main players are seeing increased competition, too. Macy's new off-price unit, Backstage, is in expansion mode, for example. The department store has shifted much of its focus to that effort, playing catchup to the likes of Nordstrom Rack in an attempt to join in on the stellar performance of off-price retailers like TJX and Ross.
Plus, online re-sale players have managed to create a digital treasure hunt that is resonating with many shoppers. The online re-sale business is one of the fastest-growing e-commerce segments, according to new research from consulting firm Fung Global Retail & Technology emailed to Retail Dive. Clothing, shoes and accessories make up nearly half (49%) of total US resale sales. The total apparel resale market, both brick-and-mortar and digital, is expected to grow at a compounded annual growth rate of 13%, from $18 billion in 2016 to $33 billion in 2021, according to the report. The pace of growth of these "re-commerce" sites in the aggregate is 20 times that of the broader retail market and five times greater than off- price retailers, according to Fung.