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The Department Store Loss Is Off-Price’s Gain

T.J. Maxx and Burlington could snag $1 billion from Macy’s and JCPenney closures.

Photo: James Leynse/Getty Images

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As the department store sector continues to closely resemble a graveyard, with nothing but bad news coming out of companies like Macy’s and JCPenney, there seems to be at least one silver lining: The off-price sector is booming.

According to a report released by equity research firm Wedbush today, stores within the off-price sector, like T.J. Maxx and Burlington, could benefit as much as $1 billion from the department store crisis.

“Department store door closings and revenue losses have been a consistent theme post-2008, with off-price reaping the benefits of reduced competition,” writes Wedbush analyst Morry Brown. “In the medium-term (3-5 year time horizon), we view the ongoing consolidation and share shifts as entirely positive for the off-price channel.”

So far, 240 Macy’s and JCPenney stores are scheduled to close this year, which Brown believes would account for $1.6 billion in revenue, and approximately $1 billion of it will likely go to off-price over the next 12 months. Brown estimates this is because of proximity, as Burlington and T.J. Maxx have stores that are right next to these shuttering locations. But off-price is also benefiting because of the basic evolution of shopping. While neither the department store nor off-price has evolved all too much over the last decade, only one promises merchandise at a steep discount. Shoppers today have been conditioned to hunt for discounts; it’s why fast fashion is thriving, and why Amazon, with its promise to undercut every price, is becoming the largest retailer in the country.

The see-saw effect of department store income versus the off-price sector is staggering. Since 2007, for example, JCPenney has been incurring a non-stop loss, with sales plummeting from $19.9 billion in 2007 to $12.5 billion in 2016. Meanwhile, a company like TJX, which owns brands like T.J. Maxx and Marshalls, has seen nothing but growth, climbing from $12 billion to $21.2 billion during that same time frame. It’s clear that for many shoppers, department stores just won’t do it anymore.

As Wedbush estimates the department store space will continue to see more consolidation as 2017 trails on, Brown raises one pressing question: If department stores eventually lose all credibility among shoppers, how will stores like T.J. Maxx and Burlington know how to price merchandise at all? Typically, clothing at off-price stores, which is usually merchandise that didn’t sell well in other stores or leftover clothing from previous seasons, is marked anywhere at 20 to 60 percent off of its full retail price. In many stores, tags even write what the clothing would cost at a department store. But as the space continues to erode, Brown wonders, will this model be completely turned on its head? What will full-price competition even look like in a few years? It’s a question no one has answers to just yet.