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Shopping for Savings: the Off Price Retail Market Heats Up

Posted on 11.9.15 by Kim McClellan in News & Trends

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Off price retailers have been capturing a lot of market share since the recession. Macy’s, Kohl’s and Lord & Taylor are all testing new off-price concepts, bringing even more weight to the idea that this class of retailer is only going to continue to grow. Historically discount/off price has always been a draw, even when the economy is not in a recession. The US has seen a 735% increase in the number of outlet shopping centers since 1975.

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Fortune notes, “In a sign of how lucrative such stores can be is this nugget: Nordstrom’s Rack stores generate more sales per square foot than its full service department stores.”

Department stores have indeed been putting their money where the market is: in only six years, Nordstrom added 109 Nordstrom Rack locations, while only bringing on 3 additional Nordstrom department store locations. During the same period, Saks brought 28 OFF 5th stores to market while decreasing their count of Saks Fifth Avenue locations by 14.

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Let’s take a look at some of the newer entrants to this sector and what the growth of this area means for the Commercial Real Estate market.

Hudson’s Bay Company, who have had much success with Saks OFF 5th, recently announced the launch of a new off price concept called Find @ Lord & Taylor, the first of which will open just in time for Thanksgiving. The 35,000 square foot store will be located in Paramus, NJ and plans to target younger shoppers with prices slightly lower than OFF 5th stores.

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Macy’s has opened five new Macy’s Backstage stores this fall and will open their sixth location before the end of the year. Their inventory includes clearance items from Macy’s stores as well as specially purchased goods from well-known brands priced at 20-80% off regular price. The stores average around 30,000 square feet and are located throughout the NYC metro area. Macy’s Backstage will be entering Texas next and has selected CBRE as their real estate partner, with Karla Smith acting as the master broker of the Texas team.

Kohl’s opened a pilot Off Aisle by Kohl’s store in June that features items returned from Kohl’s stores and website offered at a 70-90% discount. The 30,000 sf store is located in Cherry Hill, NJ.

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Forever 21 has opened five F21 RED stores and plans to open another 37 locations by the end of 2015. The stores sell fashion basics at an even deeper discount than Forever 21 stores. The first F21 RED store in North Texas just opened at the Shops at Park Lane in Dallas.

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While J.Crew is not exactly a newcomer to the off price game (they currently operate 139 J.Crew Factory Stores), they seem to be trying something a little different with the new J.Crew Mercantile. The concept, pricing and merchandise are similar to the company’s existing Factory stores, but instead of targeting outlet centers they have chosen to locate in more easily accessible areas like the first location which opened this summer at the Shops at Park Lane.

These stores tend to draw a different demographic than their older siblings by catering to Millennials. Macy’s Backstage will have cell phone charging stations in dressing rooms and will offer free Wi-Fi throughout the store. The Brooklyn location will test out a café concept called Macy’s Taste Bar Café.

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Another trait these new store models have in common is a smaller, more flexible footprint. Macy’s Backstage is 30,000 sf, about one-fifth of the size of a Macy’s store. F21 RED is about 17,000 sf, whereas Forever 21 stores usually average around 38,000 sf. These stores are small enough to fit into more modern shopping centers, yet still remain an attractive option for filling vacated mall locations.

With a long history of success, the ability to capture the attention of the fastest growing group of consumers and the ability to shape shift to fit into available retail stock, the current class of off price retailers is going to continue to meet the growing demand of consumers that are shopping for savings.

Images courtesy of the Shops at Park Lane and Macy’s

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