Off-Price Retailer

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is An Off-Price Retailer?

Off-price retailers are stores that sell high-quality goods at low prices. They offer significant discounts over the retail price. These stores sell designer clothes, branded apparel, etc.  An off-price retailer targets end-of-season stock, closeouts, overruns, returns, and inventory excess.

Off-Price Retailer

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Off-price retailer stores are created and managed by manufacturers. For customers, this could seem like a treasure hunt; they can buy the biggest brands at the lowest price. Low-price retailers do not follow the business model of regular retailers. They operate on a lower profit margin.

Key Takeaways

  • Off-price retailers offer brands, designer clothes, and goods at a lower price than regular retail stores. They accumulate off-season stock, irregular clothes, broken merchandise assortment, and unconventional goods.
  • Off-price retailing helps a manufacturer cut their losses significantly. Manufacturers establish factory outlets, warehouse clubs, and stores to transform canceled orders into revenue.
  • Due to low-profit margins, off-price retail stores operate on low working capital. They minimize overheads and maintenance costs.
  • TJX Companies, Burlington stores, and Ross stores own the highest low-price retail market share in the United States.

How Does Off-Price Retailer Work?

Off-price retailer stores are created and managed by manufacturers who sell clothes, product lines, collections, and merchandise. These stores price goods below the price offered by regular retailers. In addition, these low-price retailers sell brand-based collections—aggregated from different suppliers and sources. This includes overturns, canceled stock, surplus, unused stock, returned collections, and factory seconds.

This business model is slightly different from regular retail stores. Regular retailers purchase in bulk and acquire bulk purchase discounts.

In contrast, low-price retailers operate on a lower profit margin. Manufacturers establish factory outlets, warehouse clubs, and stores to utilize over-manufactured goods; they transform canceled orders into revenue. Naturally, this works when supply surpasses demand. Off-price retailing helps a manufacturer cut their losses significantly.

It is a common practice for every brand with a product line that launches low-price retail stores.  And, not just in the US, this tactic is practiced across the globe.

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Features

Off-price retailer features are as follows:

#1 – High Inventory Turnover Rate

Low-price retailers have lower gross margins but operate on high volumes. Brands and manufacturers transform unused or returned merchandise and sell them to customers at a lower price. But, again, if they don’t do it, excess inventory will result in losses.

#2 – Creative Element

Low-price retailers are innovative; they get creative and start buying from different sources, overruns, past-season goods, closeout deals, and private-label manufacturing. These stores do not purchase like regular stores. They avoid oversold commodities.

#3 – Lower Depth & More Freshness

These retailers avoid repeat designs. Instead, they always try to replace the inventory with newer and fresher stock. This is because they believe in selling fast. This way, buyers find the products more attractive.

#4 – Low Pricing Strategy

The low price attracts walk-ins. Every single product and collection is offered at a competitive price. But, in the end, customers buy more than they want. These stores make profits out of sheer volumes.

#5 – Basic Setup and Display

Compared to luxury retail stores and premium brand stores, the setup of a low-price retailer is small. Owing to low-profit margins, these stores prioritize low overheads. Space management is paramount; they try to squeeze more products into smaller areas.

#6 – Low Maintenance And Operational Cost

Low-price retailers operate with a minimal workforce. Therefore, cutting costs is at the top of their list, be it maintenance, employee wages, or administration expenses.

Examples

Let us look at off-price retailer examples to understand sales better.

Example #1

Let us assume that the Amacon brand specializes in clothing, a retail store consisting of discontinued stocks, irregular sizes, and unconventional styles. The store also sells goods purchased from other retailers.

The price discount attracts walk-ins. Customers purchase shirts, jeans, and apparel. On top of the discount, the store offers reasonable quality. Customers realize they won’t find the same quality at this price and purchase in bulk.

In addition, customers find more variety. For example, low-price retailers store off-season goods. So, customers looking for unconventional, low-demand products can easily find what they want. Thus, accessibility to a wider range is a by-product of low-price retailing.

Example #2

In the first quarter of 2022, the off-price sector was looking bleak. But, unfortunately, things got worse in the second quarter. This showed that major US players like TJX, Ross, and Burlington are also prone to inventory issues.

Fortunately, by the third quarter, the industry giants bounced back—with a market share of 20%. TJX sold the most—approximately 70%. Analysts believe that TJX has an opportunity to access unusual inventory buildup and is currently leading the way.

Off-Price Retailer vs Discount Store

Now, let us look at off-price retailer vs discount store comparisons to distinguish between the two.

  • Off-price retailers fill the gap left by discount stores. Discount stores offer standard merchandise at low prices owing to bulk-purchase discounts.
  • Off-price retailers are owned and operated by manufacturers themselves. In contrast, discount stores merely purchase inventory.
  • Low-price retailers contain end-of-season goods, surplus, and returned goods. Discount stores predominantly sell conventional and high-demand goods.
  • Manufacturers utilize off-price retailing to cut losses—excess inventory. In contrast, discount store cut costs by limiting the range of products.

Frequently Asked Questions (FAQs)

1. What are the types of off-price retailers?

The three main types of low-price retailers are as follows:
1. Factory outlets are owned and operated by manufacturers. They sell surplus and discontinued goods.
2. Larger retail operations operate independent retailers.
3. Warehouse clubs offer a limited selection of goods and items. But they hold stocks for multiple brands; customers can choose from similar alternatives.

2. Who is the largest off-price retailer?

In the US, the highest low-price retail market share is owned by TJX Companies, accumulating approximately 70% of sales. It is followed by two other rivals, the Burlington and Ross stores. In addition, TJX owns TJ Maxx, HomeGoods, Marshalls, Sierra, Trading Post, and Homesense.

3. What are the benefits of shopping at an off-price retailer?

A low-price retailer allows brands to turn their surplus or irregular inventory into cash by selling it to the low-price retailer. As a result, customers get to choose and shop branded, high-quality products at discounted prices; This strategy helps brands regulate cash flow and recover revenue from deadstock losses (inventory).

This has been a guide to what is Off-Price Retailer. Here, we explain it in detail with its examples, features, and comparison with the discount store. You can learn more about finance from the following articles –

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