California Apparel News

This year is shaping up to be a banner year for off-price retailers, the market segment best known for selling clothes at 20 percent to 70 percent off full price.

“It’s the only segment of the market that is growing,” said Vince Gonzales, director of brand development for the Better in Blue denim line, who has been working in fashion since 1979. Flash-sale sites such as Gilt Group regularly sell out the high-end designer inventory they acquire, and many bricks-and-mortar off-price stores are merchandised to look like full-line stores, Gonzales said.

This year, Nordstrom Rack, Nordstrom Inc.’s off-price division, announced plans to build 28 stores throughout America. The company only opened two full-price stores, including the full-line Nordstrom that opened at the Americana at Brand retail center in Glendale, Calif., in September. The retailer did close a Nordstrom Rack store in Long Beach, Calif., this year, said Geevy Thomas, president of Nordstrom Rack, in a statement. However, it wasn’t entirely a setback. The Long Beach store closed because its lease expired, and the company operates three Rack locations a short drive away.

Ross Stores Inc., headquartered in Pleasanton, Calif., opened 27 stores over the summer. Between July 2012 and August 2013, the chain opened 79 stores.

Smaller off-price chains have expanded, too. Gabriel Bros. Inc., headquartered in West Virginia, opened a new store in Toledo, Ohio, this year and expanded its Erie, Penn., store to 86,000 square feet. Fallas Paredes, a division of National Stores Inc., headquartered in Gardena, Calif., opened new stores this year, including locations in Lompoc, Calif., and Santa Maria, Calif.

The rise of off-price retail also is a shopping-center story. In 2013, nine outlet retail centers opened in the U.S. These shopping centers are devoted to off-price boutiques run by individual brands, and 10 more are forecast to open in 2014. Compare that with their full-price counterparts. No regional malls that focus on full-price stores opened this year, according to the International Council of Shopping Centers’ Value Retail News and International Outlet Journal publications, which report on the outlet-center business. The last regional mall opened was City Creek Center in Salt Lake City, which took a bow in 2012. It was developed by Taubman Centers, headquartered in Bloomfield Hills, Mich.

Past stigmas attached to off-price retail no longer exist, said Liz Pierce, senior research analyst for Ascendiant Capital Markets in Irvine, Calif. “It’s chic to look for value,” she said. The macroeconomy is making consumers cautious. They are increasingly looking for deals, and off-pricers have them every day. “The off-price sector will be one of the big winners for the holiday,” she said. “You don’t need coupons for a deal. You don’t have to wait for a sale.”

The leading trade show for this market is growing, too. The Off-Price show is expecting the largest trade event in its history—more than 1,300 booths—said Todd Fabos, marketing manager of the Off-Price show, a biannual event that takes place in Las Vegas. The next one is scheduled for Feb. 16–19. The show also will increase its cash-and-carry section, which will feature more than 80 booths, compared with 50 booths at the August show.

Even if off-price’s giant discounts fueled some of the biggest growth of this year, the ride has not been without turbulence. Last week, Ross Stores’ stock slipped in value after the retailer announced that its third-quarter sales were $2.40 billion, missing analysts’ guidance of $2.43 billion.

In a statement, Michael Balmuth, Ross Stores’ vice chairman and chief executive officer, noted that the missed guidance should be taken in context of the retailer’s continuing good sales.

“Third-quarter sales were in line with our guidance while earnings were better than expected mainly due to above-plan merchandise gross margin,” he said in a prepared statement. “Operating margin of 11.3 percent was relatively flat to last year. As a percent of sales, an improvement in cost of goods sold was offset by an increase in selling, general and administrative expenses.”

The TJX Companies Inc., headquartered in Framingham, Mass., bills itself as the largest off-pricer in the world, managing a fleet of 3,000 TJ Maxx and Marshalls stores across the globe. On Nov. 19, the company announced increases in its third-quarter results for 2014. Net sales increased 9 percent to

$7 billion, and same-store sales increased 5 percent over the previous year.

The company raised its guidance for its 2014 fiscal year, which ends Feb. 1, 2014. The company expects a full year of diluted earnings per share to be in the range of $2.91 to $2.94, compared with $2.55 in fiscal 2013.

The company maintains its solid outlook for its fourth quarter, with same-store sales forecast to increase 1 percent to 2 percent. The solid number takes into account that there are six fewer days in the holiday shopping season compared with the 2012 Christmas shopping season, according to a TJX statement.

Compared with other apparel retail sectors, off-price is a solid performer. Off-pricers reported a 2 percent gain to sales of $22.3 billion in the 12-month period between October 2012 and September 2013 over the same period in the previous year, according to information gained by the NPD Group, a market-research company based in Port Washington, N.Y.

The department-store sector also reported a 2 percent change in sales to $29.1 billion during the same period. National chains did not fare as well, reporting a 6 percent decline during the same period. National chain stores—which includes retailers such as JC Penney, Kohl’s and Sears—reported sales of $23.2 billion in the 12-month period ending in September.