Off-price
Off-price is a trading format based on discount pricing. Off-price retailers are independent of manufacturers and buy large volumes of branded goods directly from them. The off-price retail model relies on the purchase of over-produced, or excess, branded goods at a lower price, thus being able to sell to consumers at a discount compared to other stores which purchased an initial run. Among the largest retailers of this type are TJX and Ross Stores. The model is more common in countries that import fashion-oriented or household goods, as the discount role in producer countries is usually filled by factory outlets or small-scale open-air marketplaces.
Characteristic features
The term applies to fashion retail. Off-price is different from other special pricing formats in that one store might contain a great deal of products, price rates and trademarks. The range of goods is usually measured in millions of product items, whereas the quantity of brands represented is measured in thousands. The discount amount is 60-65% on average, reaching up to 90% of the initial price of similar products in brand stores of their respective trademarks and multi-brand boutiques.Quality and product origins
Off-price retailers sell products by popular brands, purchased directly from their trademark owners, distributors and manufacturers. This model keeps off-price networks protected from goods of unknown origin, guarantees their quality and ensures competitive pricing when placed beside other points of sale. Off-price retailers buy overproduced or unsold goods, showroom remnants of collections from their respective brand owners or brand stores and distributing networks under certain terms and conditions in order to offer them to their final consumer with the lowest possible markup. As a rule, off-price retailers purchase huge supplies consisting of various products from their respective brand owners, with no strict requirements to the depth of their lineup and collection completeness, which enables them to get more profitable terms for deals.Consumer motivation
Traditionally, shopping in off-price stores is referred to by the term "treasure hunt", reflecting the concept of the format: customers searching for original branded products at their lowest ever price. This behavioral model is a symptom of a global trend of "smart shopping"; the customer's focus being on getting the largest financial benefits possible while buying high-quality products of the actual models.History
The origins of the off-price format are generally considered to be rooted in the U.S.A. The industry can be traced back to the year 1909, when a special shopping area was opened in a ground-floor at a famous Boston department store, Filene's. It was called Filene's Basement and used for selling commodity surplus. Edward Filene, a son of the store's founder, developed an "automatic price-reduction schedule" for it. The products were supplied to the basement with a discount tag, but in especially settled periods of time their price was lowered even further: after 12 days the price would be lowered by 25%, in 18 days – by 50%, in 24 days – by 75%, and finally, after the 30th day, the goods would be given away at no charge at all to charity. The area itself was both well lit and properly designed, and it had hired its own separate floor staff. Filene's Basement was very popular among local residents and tourists, and most of its goods sold out within the first 12 days. Although the idea of a "beneficial basement" wasn't new – since a similar concept had been used in 1879 by Marshall Field, – it was Filene's Basement which brought fame to it and promoted it as an innovative way to make sales. Filene's Basement eventually evolved into an off-price network of 20 hypermarkets that would exist until the year 2009. The schedule of automatic price reduction initially invented for the store in the early 20th century was also used by him for quite a few decades after.By the middle of the 20th century, the U.S. would witness the wide popularization of similar "basement sales" at other malls, as well as so-called “factory sales”, when vacant factory rooms were used for the discounted sale of over-produced goods. From 1930-1950 the textile and sewing industries in the U.S.A. underwent a period of rapid growth. During WW1 and WW2 the U.S.A. became isolated from the major European suppliers of textile and sewing machinery - and, as such, domestic manufacturing began to increase. In the 50s, a huge amount of clothing, footwear and other sewn products were manufactured locally, and by the end of the season factories were prepared to announce substantial cut-offs and sell the unsold remnants on their own. Small business entrepreneurs would buy products out at wholesale prices and arranged their own retail sales in vacant factory workshops and other rooms that were cheap enough to rent. As their businesses grew, they expanded by moving to department stores or indeed building their own stores.
1950-60s
In 1956, U.S. businessman Alfred Marshall put together a think tank of entrepreneurs and suggested the launch of a start-up with the concept of “brands at lower prices”. Having observed a post-war economic boom and the development of the American suburbs, they decided to capitalise on these phenomena to establish new business. They opened a self-service department store in Beverly in order to propose clothing and household products at tempting lower prices. Part of the area was given away to be subleased by third-party footwear, accessories and active sport product dealers, but that division wasn't visible to customers. The department store was at peak popularity, and in about 10 years, Marshalls became an off-price networking headliner in the United States with just two dozen stores.In the mid 1950s the countrywide famous network of Bell Hosiery Shops began to experience success through its own “factory sales”, introduced due to wide expansion causing decline in their regular network sales. Consequently, the owners of Bell Hosiery Shops opted for discounting as their major sales strategy. They decided not to continue setting up discount stores at factories, instead choosing to begin opening new stores in malls or their own outlets. Their first hypermarket, boasting a total area of, celebrated its opening in Hyannis, Massachusetts, in July 1956. It was named Zayre. A few months later a second hypermarket was established in Boston. Its area was approximately. By 1959, the company had opened six stores all under the Zayre name, and by early 1962 their number reached 27. The same year, Zayre Corp became a public company and commenced trading on the New York stock exchange. By late 1966, the network had grown to 92 stores all over the United States. Shoppers could find lowered price tags on knitwear, toys, sports products, books, health & beauty products and many more categories. In 1965, the store “Hit or Miss” was opened. It sold high-quality women's wear at discounted prices. Zayre Corp, aware of this new concept store and its rapid growth, took over Hit and Miss in 1969 with a view to maintaining their own fashion aspirations.
1970-90s
Due to the volatility of the U.S. economy in the 1970s and the recession that had brought about significant change in customers' attitude to expenses, the off-price industry was gaining considerable momentum. By buying surplus goods from manufacturers at the end of each season, off-price networks would offer fashionable branded goods at 20-60% lower than department stores. The “Hit or Miss” network belonging to Zayre Corp was growing so fast that Zayre considered the opportunity of expanding its off-price business. They even made a failed attempt to buy the Marshalls network that had also achieved fame as an off-price retailer. Zayre then hired a Marshalls ex manager, Bernard Cammarata, to create a clone of Marshalls. TJ Maxx, the name of this store, was opened in March 1977 – and it was followed by a series of other openings for the brand-new network. These stores became popular, offering quality clothes at reasonable prices and a constantly updated range of products to the US's growing population.A few years after these events, Zayre Corp began to develop yet another line of business, – by providing customers with the opportunity to purchase goods through catalogues via the postal service. Zayre established the Chadwick's Boston co., and Home Club, Inc. networks of household appliance stores in 1985. So there the corporation included a few networks, such as Zayre discounters for customers with low and medium level of income; TJ Maxx, Hit or Miss, and Chadwick's Boston for clients with medium income and higher.
By 1986, the number of “Hit or Miss” stores in the United States had reached 420, and their sales had grown to 300 million dollars. Nearly 70% of its product assortment was brands with nationwide recognition, while the remaining 30% was manufactured under the Hit or Miss label. The network managed to keep price tags at 20-50% lower than most specialized stores ever did. In 1987, TJX was founded to manage the companies. In 1988, Zayre decided to concentrate its efforts on maintaining their off-price direction. It sold all of its network, consisting of nearly 400 Zayre stores, and the label itself to the competitive discounter network Ames Department Stores Inc. for 431.4 million, and by 1990, all Zayre stores were closed or converted into ones under the Ames brand. Meanwhile, in 1976, Marshalls was acquired by Melville Corp. By then, the network had 36 stores in operation. With its new owner, growth surged; by the year 1995, it owned 496 stores in the US and Hawaii. In 1995, TJX Corporation bought out Marshalls – by signing a bargain contract worth 606 mln dollars.
In 1972, a company called Burlington was founded. The first store of the network appeared in Burlington, NJ, when the librarian Henrietta Millstein persuaded her husband to acquire a former factory outlet at 675 thousand dollars, by making a down payment of 75 thousand dollars that she had saved through her work. In 1975, the company opened its second store. By 1983, the network had reached 31 shopping points. In 2006, it was acquired by Bain Capital Partners at 2 billion dollars and proceeded with its vigorous development.
Right after Burlington was founded in 1975, one more player arrived to the US market – Nordstrom Rack, which opened in the basement area of the Nordstrom department store in downtown Seattle, WA. As the Nordstrom stores network grew, off-price Nordstrom Rack stores followed their success.
In 1982, the Ross Stores network in the US, owner of 6 department stores, changed their format on passing to a new owner and began to grow as an off-price retailer. In just three years, the network expanded to 107 stores, and by the year 1996, it consisted of nearly 300 department stores with its annual revenue reaching 1.5 billion dollars.
In Europe, the off-price format appeared only a few decades after showing up in the United States. The first continental store of the kind appeared in 1976 under the “Le Soldeur” trademark, opening in the town of Laval, Western France. The then founder of the company, Remy Adrion, bought a huge supply of clothing directly from a factory on the brink of closure. This brought about the company “NOZ”; the first European off-price retailer. Gradually, Adrion widened the range of products on offer and increased the number of stores. By 1987, he had founded 10 stores in France with his own logistical platform. In 1992, state regulation changed to prohibit the use of the term 'solde' in commercial organization names, and the network changed its trademark into NOZ.