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More shoppers head to discount stores
With fears of recession hanging over the nation, Kimberly Washington has
begun to steer clear of her usual retail haunts — Macy's (M), The Limited (LTD),
Ann Taylor Loft (ANN).
Unless there's a clearance sale, "The prices are just too high for me." Her
favorites now? T.J. Maxx, Marshalls and Ross Dress for Less (ROST).
TELL US: Have you changed your shopping habits because of the economic slowdown?
"I can find good-quality merchandise at lower prices than in some regular
stores," Washington, a legal editor from Stone Mountain, Ga., says of the
off-price retailers.
Her shopping habits seem to fit a broader pattern. The weaker the economy gets,
it seems, the more some discounters benefit and the bleaker the outlook for
their higher-priced competitors. That trend burst into view during the holiday
season, when Wal-Mart and some off-price retailers outperformed full-price
stores.
Now, with the economy sputtering, some analysts say, more shoppers have begun to
ratchet down the price level of the stores where they shop.
Off-price retailers are in a "customer-gathering mode," says retail analyst Jeff
Stein. "Department store customers are able to shop in a different venue and get
the same brands. (T.J. Maxx and Marshalls) are gaining exposure to
non-traditional customers."
Analysts point to sales figures, including fresh data out Thursday and figures
from previous downturns, to show that more shoppers turn to discounters at times
such as these. January retail sales were dismal across the board, and the
International Council of Shopping Centers said it was the worst January showing
since at least 1970. Still, discounters such as Wal-Mart (WMT), Ross and TJX
(TJX)— parent of T.J. Maxx and Marshalls — outperformed their higher-priced
competitors, such as Nordstrom (JWN) and Macy's.
The next year's outlook for some discounters — when compared with higher-end
stores and full-price retailers — suggests Wal-Mart, TJX, Ross and others will
continue to enjoy an edge. (See charts on left.)
Off-price stores typically sell some of the same name-brand clothing found at
department stores but at prices that are often far lower, along with jewelry,
luggage and other items. These stores buy merchandise that didn't sell at
department stores in previous seasons, then sell it at deep discounts. They also
buy from apparel makers when stores cancel orders or go out of business.
Wal-Mart, on the other hand, sells discounted name-brand food, health and beauty
aids, as well as private-label and other low-price clothes.
Changing attitudes
In recent weeks, some people who seldom shopped at Wal-Mart, for reasons ranging
from a perception of low quality to poor customer service, say they've put aside
those concerns in favor of saving money. Others who normally favor attractively
displayed merchandise and a wide selection now say they find off-price retailers
a way to shop down without sacrificing style or brands.
Amy Erickson of Bensalem, Pa., lives within a mile of a Macy's, a Target and an
outlet mall, but these days spends most of her shopping time at Wal-Mart. She'll
still rifle through sale racks at the outlet stores. And her husband jokes that
they should have named their 1-year-old son Clearance. But since her family's
adjustable-rate mortgage reset in October, jacking up their monthly payment by
more than 35%, they value the savings on food, formula and diapers at Wal-Mart
more than ever.
"It's just so much less expensive," she says.
That shift, suggests Marcy Syms, CEO of off-price retailer Syms, is "something
we'll see more of, and it's consistent with past harbingers of recession. It
takes a lot for people to change buying patterns. It usually has to be something
they feel significantly in their home budgets."
Marcy Syms notes that the 1990-91 recession actually helped lift sales at Syms.
Phil Rist, a vice president at consumer insights firm BIGresearch, notes:
"Consumers are shopping around more. … You're definitely seeing more activity at
the discounters than you do in economic boom times."
These days, Kristy Tucker of Lexington, Ky., is shifting toward two regional
off-price retailers in her area, Goody's and Gordmans.
"My husband is quite happy that I'm no longer shopping at Macy's, Express and
Old Navy," Tucker says. "Nowadays, Gordmans and Goody's are our first stop, not
the other places. I still get my jeans from Old Navy, but that's it."
Retail analyst Bill Dreher of Deutsche Bank Securities notes that Wal-Mart
emerged from the 2001 recession in stronger shape than it entered it.
The trend could carry long-term implications for all the retailers. People who
try — and like — stores in shaky economic times are more likely to stick with
them after the economy rebounds.
Wal-Mart is "in the right place at the right time," says Dreher, who follows the
discounter. It "provides a solution to consumers during those rough economic
times when they're driven to the stores because of economic need." Once the
economy improves, those shoppers "tend to stay with Wal-Mart for the more
discretionary categories as they come out of recession."
To avoid spending too much, Michael West says, his family's been consolidating
shopping trips to save gas and buying more of their food, clothes and other
necessities at Wal-Mart.
"We used to hate going to Wal-Mart because of the huge lines at checkout, but
they've fixed that in the last year," says West, of Montgomery, Ala.
About 85% of people with household incomes of more than $100,000 reported in WSL
Strategic Retail's new How America Shops survey that they were already shopping
at Wal-Mart at least once in the prior three months. WSL CEO Wendy Liebmann says
that means the discounter is well-positioned to prosper in a sluggish economy.
"The door is already open to (higher-income customers); now they just may be
spending more than they did before," says Liebmann, whose company's survey
results will be issued this month. "These people are thinking, 'Why shouldn't I
save the 20 cents on toilet paper, because it all adds up.' "
With the price of apparel rising along with gas, electricity and food prices,
Erin Chandler of Findlay, Ohio, has scaled back her clothes shopping and avoided
Macy's, Nordstrom and such specialty retailers as J. Crew (JCG) and Banana
Republic. Before the economic slowdown, she says, she never shopped at Wal-Mart
for anything except toiletries or groceries. She also wasn't a T.J. Maxx
shopper, "simply because I didn't feel that I had to be. … To be honest, T.J.
Maxx seemed a little like an unnecessary downgrade."
But recently, she concedes, she's bought a few items of clothing at Wal-Mart and
adds, "I do not have a problem with doing so."
And after shopping at T.J. Maxx regularly, Chandler, a college admissions
counselor, thinks the off-price retailer "has a fair selection of brands and
offerings and is very reasonable on price. I now save department-store shopping
or brand-name store shopping for specific pieces that I know work, (like) jeans
from a specific chain or a pair of shoes I know I love."
Wal-Mart is probably even better positioned than the off-price retailers because
it doesn't rely so much on discretionary fashion and home furnishings. Rather,
it's the largely recession-proof staples — food, health and beauty aids,
cleaning products and other home essentials — that draw mobs to Wal-Mart.
Another discounter, Ross Dress for Less, thinks its customers fall into two
groups: those who "want a bargain" and those who "need a bargain," says Katie
Loughnot, Ross' vice president of investor relations.
"We do attract a 'trade-down' customer who is not spending as much as they
were," Loughnot says. "We also attract people who aspire to wear a brand but
couldn't afford to get it at a better department store."
Though Loughnot says many variables affect consumer spending, she thinks that
when the economy suffers, Ross outperforms full-price stores because "we are
very value-focused. Name-brand bargains will always be in style."
Pondering every purchase
Many of the gifts under the Christmas tree last year from Laura Arnold's husband
were from Ross, which is new to her area in Midlothian, Va. Arnold did most of
her gift-card shopping at Wal-Mart, because she knew the money would "stretch
further."
The couple, who are trying to pay off credit card debt, have boosted the portion
of shopping that they do at discount stores from about 50% to about 80%. That's
likely to continue because she says they're "trying to go several months with
only absolutely necessary purchases."
Many people will drive farther or brave bigger crowds to shop at Wal-Mart.
Still, some of them aren't quite willing to make the leap to buy their clothes
there. Wal-Mart's efforts to snare clothing shoppers from competitors,
especially Target, have foundered in the past few years, along with its efforts
to market "designer" clothing.
Still, for Erica Leydic of Atlanta, Wal-Mart clothes are a source of pride.
She's been a discount shopper for years. "I love the thrill of the hunt," she
says. "Plus, I think it's great when girls comment on my great outfit, and I
say, 'Wal-Mart — $5.00.' "
At discounters such as Marshalls and Ross, some shoppers prefer not to face the
scattershot selection, despite the brand names. Chrystal Johnson Roesle of
Birmingham, Ala., says shopping at off-price retailers is still "just not worth
the hassle."
Linda Totten of Cary, N.C., says she's been to T.J. Maxx only two or three times
because she says it's too challenging to find her size. She prefers sales at
Dillard's (DDS) or online shopping at Coldwater Creek (CWTR), where there are
70%-off deals and more to choose from.
There are other challenges for off-price stores.
"At the end of the day, (off-price stores) are still fashion retailers, and
(people) may not buy just because it's a good price," says retail analyst Stein
of Stein Research in Cleveland.
But Kimberly Washington says off-price retailers are the best solution for her
family these days.
"I spend so much time in the car transporting my children that the money that
might ordinarily be spent elsewhere on clothing goes to gasoline," she says.
"With all of the negative news about the economy, you just never know what might
happen, (so) we try to save money and not spend more than we have to on
anything."
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