For ecommerce wholesale businesses in the fashion and soft goods industries, selling to off-price retailers can be a smart strategy for insulating your business against demand unpredictability.
The off-price sector has been booming over the last few years, reaching a $322.3 billion market cap in 2023—bolstered in part by the advantages off-price retailers have in uncertain economic climates.
When budgets are tight, consumers often turn to these lower-price options to obtain higher-value goods. In fact, a 2023 ICSC survey found that 48% of Gen Z consumers shopped most frequently at off-price retailers like Marshalls and TJ Maxx, while only 24% had shopped at specialty retailers like Sephora.
Off-price retailers also benefit from economic volatility because they can take advantage of more surplus inventory to bring in high-quality goods at low prices.
What is an off-price retailer?
Off-price retailers take advantage of overruns, inventory forecasting mistakes, and canceled orders to sell brand-name merchandise at a significant discount.
Consumers are drawn to off-price retailers by the allure of high-quality, brand-name goods at big discounts. However, the selection can be unpredictable. Shoppers might not always find exactly what they're looking for, but they could discover unexpected deals.
Recent financial reports confirm off-price retailers like TJ Maxx, Ross, and Nordstrom Rack are becoming increasingly popular among younger shoppers.
Types of off-price retailers
Independent off-price
These retailers buy unsold or slightly imperfect items from manufacturers and other stores. They offer a mix of brands at lower prices.
Ross Dress for Less, for instance, buys wholesale inventory from various brands and retailers, offering a revolving mix of clothing, home goods, and accessories. Prices are typically 20%-60% below department store rates.
Closeout
These stores focus on buying products fromr retailers that are going out of business or need to get rid of inventory fast. For example. Big Lots acquires merchandise from store closures, overstock situations, and packaging changes, and sells a wide range of products at a deep discount, from furniture to food..
Sample stores
Yesterday’s catwalk, today’s closet is the concept behind these pop-up stores, where you can find the actual samples used by fashion brands to showcase their upcoming lines sold at the end of each season.
260 Sample Sale is a company that hosts special sales events featuring designer samples and overstock. Shoppers can find high-end fashion items at up to 90% off retail prices, but sales are often short-lived and hectic.
Retailer-owned off-price
Major retailers create their own discount stores to sell items that don't sell well in their main locations. Most notably, Nordstrom Rack sells clearance items from Nordstrom department stores, alongside special merchandise. You can find designer brands at up to 70% off regular prices.
Factory outlet
These stores sell products that didn't make the cut for regular stores. You'll find test products, extra inventory from fashion brands, and items with small flaws.
The Nike Factory Store is a great example, offering Nike products that didn't make it to regular retail, often at 20%-70% off. You'll find last season's styles, overstock items, and sometimes products with minor defects.
How off-price retailers work
Off-price retailers start by buying huge amounts of goods straight from manufacturers. They're always on the hunt for overproduced items or stock that brands need to offload quickly.
By snatching up these surplus goods in bulk, they can negotiate rock-bottom prices. This is the key to their business model.
Paying less upfront means they can sell to customers at a discount while still making money. It's a win-win for both the store and shoppers looking for deals.
It's worth noting that most off-price retailers aren't tied to any one brand. They're independent players, always on the lookout for the next great bargain from any manufacturer.
To keep costs down even further, these stores operate with a lean team that focuses the essentials like running the cash registers, dealing with incoming shipments, and setting up product displays, rather than devoting much time to customer service.
This no-frills approach helps keep overhead low, allowing off-price retailers to pass big savings along to customers without hurting their bottom line.
With this clever combo of savvy purchasing and stripped-down operations, off-price retailers have found a sweet spot in retail, allowing them to offer brand names without the brand-name prices.
Why wholesalers might consider partnering with off-price retailers
The off-price retail space is expected to continue to grow for the foreseeable future.
While many brands are focused on direct-to-consumer (DTC) models, off-price retailers offer unique advantages to wholesalers. Understanding the trade-offs between direct-to-consumer versus wholesale strategies can help brands make informed decisions about their distribution channels. Off-price retail, in particular, provides an additional outlet for inventory management that pure DTC models may lack.
Factors contributing to off-price retail’s continued success include:
1. Consumers continue to be conservative with their dollars
Despite a somewhat rosier economic outlook today, consumers continue to rein in their discretionary spending. Off-price retail stores are popular because their costs are low, and they are able to offer discounts of 20% to 60%.
2. Off-price retailers have a different purchasing strategy
Off-price stores are opportunistic in their purchasing strategy—TJX, for instance, works with more than 16,000 sources and is able to cherry pick the best offerings from wholesalers and manufacturers that need to clear excess inventory or unpopular items.
3. Off-price retailers move inventory more quickly
Since off-price retailers don’t have high margins, they have to make it up on volume, so their buyers are constantly in the market for the latest trends and greatest deals. Off-price retailers buy up to 40 times a year, compared to four times a year for full-price retailers.
Ultimately, the secret to off-price retailers’ success isn’t a secret at all:t’s low cost and high volume. Whilefull price retail relies on fashion trends and changing design to drive demand and profits, off-price retail relies on low cost to move a high volume of goods quickly. It does this by leveraging its relationships with designers, wholesalers and manufacturers with excess inventory.
Where wholesalers can find off-price buyers
If you’re looking to move inventory quickly and you’ve established that off-price retailers are the way to do that, the next question is how to find those off-price retailers that would be the best fit for your brand. Here are a few ways to get started:
1. Trade shows
Off-price retail buyers attend the usual trade shows for fashion and soft goods, and also have a few of their own. The Offprice Shows in New York and Las Vegas are two to consider.
2. Off-price markets
Just as cities like Dallas, Atlanta and Los Angeles have wholesale markets and showrooms where full-price wholesalers and retail buyers can meet, some also have off-price markets, such as the Los Angeles Off-price Market, which offers several blocks of year-round off-price markets in downtown LA near Santee Alley.
3. Full-price markets
SInce buyers in the off-price retailing trade are always buying—40 weeks a year versus only four times a year for most full—price retailers—they do attend larger trade shows.
Off-price retail looks to be popular with consumers for the foreseeable future, and provides a needed service to the B2B wholesale industry. Relationships with buyers in the off-price retailing market can be a great way for fashion and soft goods wholesalers to insulate against the ups and downs of supply and demand.
4. Wholesale ecommerce websites
Online B2B marketplaces and wholesale ecommerce websites can be excellent places to connect with off-price buyers.
Platforms like Alibaba, GlobalSources, and ThomasNet offer dedicated sections for surplus inventory and off-price goods. These marketplaces often have features that allow wholesalers to list overstock or seasonal items at discounted rates.
Partner up with off-price retailers to increase sales
Retail is tricky—consumers are finicky, and even the best designers and retail professionals can make mistakes about trends, colors, or design, or miscalculate demand for a particular item.
In these cases, an established relationship with an off-price retailer offers companies the opportunity to salvage some of their manufacturing costs, and even to make a profit out of a potential loss.
FAQ on off-price retailers
What are the popular off-price retailers?
Off-price retailers like TJ Maxx, Marshalls, and Ross Stores have gained popularity for offering brand-name products at steep discounts. Online stores like Overstock are also part of the off-price segment, it’s not just for regular retail stores. These retail chains typically sell items at 20%-60% below regular retail prices, attracting bargain-hunting shoppers.
What is an example of off-price retail?
TJ Maxx is a great example of the off-price retail model. By purchasing excess inventory and canceled orders from manufacturers and other retailers, they can offer customers significant savings on a wide range of products.
What are the three main types of off-price retailers?
The three main types of off-price retailers are independent closeout retailers, factory outlets, and warehouse clubs. Independent closeout retailers buy and sell overstock or irregular goods, factory outlets sell directly from manufacturers, and warehouse clubs offer discounted bulk purchases to members.
What are the advantages of off-price retailers?
The appeal of off-price retailers lies in their ability to offer substantial savings and create an exciting shopping experience. Customers enjoy the thrill of finding high-quality items at bargain prices, while manufacturers benefit from an outlet for excess inventory.
What does off-price retailing refer to?
Off-price retailing is a business model centered on selling brand-name or designer products below traditional retail prices. It relies on strategically purchasing overstock, canceled orders, and end-of-season items to maintain competitive pricing.
