Jennifer Marks

The Big Tier

April 17, 2017

You don't want the truth because deep down in places you don't talk about at parties, you want me on that wall, you need me on that wall.

Colonel Jessup, “A Few Good Men”

Deep down in places suppliers don’t normally make a fuss over in their showrooms, there is the business being done with off-price retailers. The so-called “third tier” of retailing is now the fastest growing channel in bricks & mortar.

While the power of e-commerce cannot be under-stated, the physical store is still where the vast majority of home textiles purchases are completed: 70% for top of bed and 77% for bath towels, according to Cotton Inc.’s recent consumer survey.

And in terms of physical store traffic, off-pricers are weathering competition from online shopping better than most retailers in the apparel and home goods space. Two-thirds of U.S. consumers now patronize off-price stores, according to a new white paper from NPD Group. Today there are more than 5,600 off-price stores in the country and over 1,000 more projected to open over time. That’s a lot of shelves to fill.

And as the coterie of middle-market retailers scale back their physical footprints, that off-price shelf space grows ever more precious.

The channel leaders are hardly newcomers to the scene. Ross Stores is nearly 70 years old. Marshalls hit 60 last year. Burlington has been around for 45 years, Tuesday Morning for 43 and TJMaxx for 41.

So why now? Credit the Great Recession, which recalibrated the consumer mindset. Off-pricers gained significant market share during the downturn, and when the economy began growing again they managed to hang on to a good portion of it. In fact, the biggest among them are still gaining.

NPD Group’s white paper described the phenomenon as a shift to “responsible” spending and away from the aspirational shopping that fueled retailing in the 1990s and early aught years. That trade-up posture was lampooned in a pre-recession era JibJab video titled “Big Box Mart.” A middle class consumer sings of his love for Big Box Mart as he loads his cart to heaping with discounted merchandise, filling his house to the p

oint of bursting. (In the end, the factory where he works gets shut down and the jobs shipped offshore in order to make goods more cheaply…for Big Box Mart.) The white paper reported that even Baby Boomers, who continue to have more discretionary income than any other group, aren’t spending as freely on the same types of merchandise they did a few years ago.

And Millennials, said NPD, are downright frugal, except in a handful of categories. They prioritize their purchases, are uncomfortable with debt, are drawn to artisanal and handcrafted items, and pursue individuality rather than fashion.

By now we’re all aware of the prevailing consumer preference to spend money on experiences rather than ‘things.’ This is why retailers are adding coffee shops, restaurants, beauty salons and other services to their stores. What grand experience are off-pricers putting forward? The same simple treasure hunt they’ve always offered, with merchandise churning through so quickly that consumers know if they don’t buy it today, they won’t have an opportunity to tomorrow.

That’s why a prominent brand supplier recently disclosed that his operation no longer refers to off-price as the third tier. “We call it the big tier.”