Last week, the Gap announced it would close 175 of its specialty stores in North America over the next few years to improve business performance. It’s not so shocking considering reports that the lower-priced Old Navy brand has been keeping the company above water (both are owned by Gap Inc. as are Banana Republic, Athleta and Intermix).
Some major retailers, no doubt hoping to avoid a similar fate as the Gap, are seeking to boost sales by introducing lower-priced offshoots. The result, a new crop of off-price stores, means value-conscious consumers may soon have more choices.
Macy’s is testing an off-price store concept called Macy’s Backstage. Four stores, scheduled to open this fall in the New York metro area, will feature everything from women’s clothing to home furnishings priced at up to 80 percent off.
Kohl’s is conducting a similar test for Off Aisle by Kohl’s in New Jersey where returned merchandise in like-new condition will sell for up to 90 percent off.
In the grocery sector, Whole Foods announced it would be opening a lower-priced chain, 365 by Whole Foods Market, named after the store’s in-house brand. They will open five to 10 stores around the country next year.
“(Retailers) are under pressure to grow and … there are three generic ways to grow your business,” says Douglas Bowman, professor of marketing at Emory University’s Goizueta Business School. “Get new customers, steal customers and get current customers to buy more. They are maxed out on getting current customers to buy more.”
But retailers have discovered that the value-conscious shopper is here to stay, fueled by the growing number of millennials entering adulthood, Bowman says. “Twenty years ago, we called those people cheap, and now we call them frugal and smart,” Bowman says, and retailers are trying to meet them where they are while also beating back the competition.
With mainstream grocery stores allocating more space to organic foods and the expansion of value-driven stores like Sprouts, Whole Foods faces more competition than ever. Macy’s and Kohl’s have watched Nordstrom keep sales on track thanks to the growth of its lower-priced Nordstrom Rack stores and Nordstromrack.com.
While most of these store concepts are planned for select markets and retailers are mum on plans for national expansion, Bowman says consumers can be sure that if retailers see enough repeat business and growth in the test phase, you may soon find one of these stores near you.