How TJ Maxx and the likes are stealing America’s middle class’ hearts

Retail experts in the US are in clear agreement: off-price retailers - such as T.J. Maxx and Marshalls’ parent group TJX Cos., Ross Dress for Less, Burlington Coat Factory, and Nordstrom Rack - have replaced mainstream mall players and stolen the middle-income shoppers’ hearts.

"The challenge is that American consumers went into frugality mode during the recession, and though the economic news is much better now, they still have largely not emerged," said Garrick Brown, vice president of Retail Research of the Americas at Cushman & Wakefield in an interview with the ‘Philadelphia Inquirer’.

"Luxury and high-end retail bounced back within about 18 months of the recession. Discount and off-price thrived" as well, Brown further added, highlighting how also “mid-priced retail hard-goods players got hammered" as "so many of the goods they offered could be found online, as well with Amazon and other pure-play e-commerce players."

In a report covering the retail sector in the United States, issued last August, Moody's Investors Service predicted that the same four value-oriented chains will "continue to outperform the apparel retail segment over the next five years."

"Off-price retailers are anticipated to experience apparel revenue growth of 6 to 8 percent, outperforming the broader apparel segment by a collective 4 percent," the analysis house’ research indicated.

Meanwhile, department stores seem to be taking the opposite path, as they continue to lose share due to “online competition increases and mall traffic continues to decelerate," noted Christina Boni at Moody’s.

TJX Cos. And Ross Stores Inc. appear as the leading players within the off-price niche

"The off-price incumbents are able to purchase high volumes of disparate goods from suppliers through their significant scale, flexible purchasing, strong vendor relations, and adaptable real estate strategies," the Moody's report said.

Moody's expects the off-price segment's market share in sales to grow to about 10 percent of apparel sales by 2018, from 8.8 percent in 2015.

Even Nordstrom, a more upscale player, hasn't been immune. The company's growth is all coming from Nordstrom Rack. Outside of a planned New York flagship, the only new full-line Nordstrom department stores that have opened are in Canada. The company closed two U.S. department stores in recent years, including one in downtown San Diego.

Meanwhile, Burlington Coat Factory wants to add 80 to 100 stores this year; Ross, T.J. Maxx, and Marshalls want to open 40 to 60 new stores each; and Nordstrom Rack is planning 35 stores.

Data collated by ‘Seeking Alpha’ indicates that, based on Ross Stores’ management’s estimates, the company has a long-term potential of 2,000 Ross Stores and 500 dd's DISCOUNTS stores before saturating the market. As of August, there are 1,317 Ross stores and 184 dd's DISCOUNTS across America. That would mean nearly doubling the size of the company. “With the growth Ross has shown in the past, I would tend to believe that they are capable of meeting goals like this. These growth goals are in-line with what investors could expect TJX to accomplish long-term, as well,” says Jonathan Wheeler for ‘Seeking Alpha’.

Madeline Hurley, retail analyst at IBISWorld Inc., in New York, said: "Consumers feel that they are receiving a better value when shopping at off-price stores than at traditional department stores. Especially as off-price retailers expand their online offering, department stores will have an even more difficult time competing."

Image:RossStores.com