For wholesale businesses in the fashion and soft goods industries, selling to off-price retailers represents a compelling strategy for insulating your business against demand unpredictability. Off-price retailers are retailers that take advantage of overruns, inventory forecasting mistakes, and cancelled orders in order to sell brand-name merchandise at a significant discount.
Off-price retail has been booming over the last few years as the United States has dealt with recession and recovery. Indeed, off-price retailers have several advantages during uncertain economic climates. As a lower price option to obtain higher value goods, consumers often turn to these stores when budgets are tight. Off-price retailers themselves also benefit from poor economic conditions because they are able to take advantage of greater excess inventory to bring in higher quality goods at lower prices. Some of the biggest off-price retailers include TJX (TJ Maxx, Marshalls, and HomeGoods stores), Ross Stores, Burlington Coat Factory, Big Lots, Filene’s Basement and DSW (Designer Shoe Warehouse) in the brick and mortar space, as well as Overstock.com and Bluefly.com in the online space.
You might expect that as the economy recovers, the off-price retail market wouldn’t be looking as promising. However, credit rating agency Moody projects that the three biggest off-price retailers – TJX, Ross and Burlington – should see between 6 and 8 percent growth over the next five years, compared to only 4 percent growth for the retail industry as a whole. With those kinds of numbers, it’s definitely worth taking a closer look.
Why off-price retailers?
The off-price retail space is expected to continue to outpace the rest of the retail space for the foreseeable future. In fact, despite off-price retailers’ rather underwhelming online presence, they are the fastest growing segment in retail today.
A few of the 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 these days, consumers are continuing to keep a close eye on 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. This is a big part of why the off-price retail business model works. Off-price retailers don’t have high margins, so they have to make it up on volume. This means that 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 – it’s low cost / high volume. Unlike full price retail that 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.
A Symbiotic Relationship
Retail is a tricky business – consumers are finicky and even the best designers and retail professionals make mistakes sometimes about trends, colors and other design aspects, or miscalculate demand for a particular item. In these cases, having an established relationship with an off-price retailer offers companies the opportunity to salvage some, if not all, of their manufacturing costs and even to profit – even if the margins are lower than they would have been in full-price retail.
Finding Off-price Buyers
Regardless of the reason, 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 good buyers 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 Off-Price Shows in New York and Las Vegas are two to consider.
2. YEAR ROUND OFF-PRICE MARKETS AND SHOWROOMS:
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. Los Angeles is a center for the off-price retail market, with several blocks of year-round off-price markets in downtown LA near Santee Alley.
3. FULL PRICE MARKETS AND TRADE SHOWS:
Buyers in the off-price retailing trade are always buying, 40 weeks a year as opposed to only four times a year for most full price retailers. That means they are always on the hunt and 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 wholesale industry. Establishing 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.