The debate about whether department stores are disappearing or just undergoing a metamorphosis continues, with no evident end in sight. But in either case, it appears that even the most stable and consistent of department store chains are discovering that they need to adjust if they are to remain in business. A remarkable shift thus is emerging, in the form of off-price partner brands, introduced and run by the traditional parent brands.

The success of Nordstrom Rack represents a clear impetus. It was followed by Saks Off Fifth. Thus two of the first entrants into this market segment entered with the benefit of high-end, luxury brand images. More recently, the trend has spread to other department stores, including Macy’s and Lord & Taylor.

Lord & Taylor’s roll out its off-price chain, which it will call Find@Lord & Taylor, began in Paramus, New Jersey. The new store of approximately 35,000 square feet will feature both apparel and home furnishings. The inventory, split about evenly between off-price and clearance items, seeks to appeal to younger and small family market segments, which differs from the demographic profiles that tend to shop at traditional Lord & Taylor stores. With plans to open six more locations within the next year, Lord & Taylor notes that the inspiration for this expansion came largely from its sister company Saks.

For Macy’s, the move to introduce its Backstage chain of off-price stores followed nearly six years of planning and internal debate about whether it was an appropriate move. Macy’s had long relied on its strong capabilities and foundational advantages, which enabled it to grow through acquisition and leverage its customers’ desire for a range of brands and price points. With the Backstage chain, Macy’s still seeks to establish a distinctive advantage, though with a slightly different approach. For example, Backstage will have plenty of clearance items that Macy’s also sells, but it also plans to include discounted merchandise from other retail sources. That is, some of the products on offer will be unique to Backstage and cannot be found in Macy’s regular stores.

Collected evidence has continued to indicate that the off-price market is where customers are heading. In particular, the expanding success of rivals such as TJMaxx and Marshall’s—a segment whose sales grew approximately 44 percent over the past five years—has indicated that customers prefer to access low prices immediately, on every visit, rather than waiting for items to go on sale. Furthermore, sales data reveal that more and more shoppers have adopted “opening price mindsets,” such that they regard the prices posted on sales tags as just the first offer. They remain ready to negotiate or wait for a second, or third, price offering, or else to head to a store that will provide the lowest price at that very moment.

 

Discussion Question:

How are traditional department store retailers changing their 4Ps by opening off-price brands?

Source: Suzanne Kapner, “Macy’s Fights Downward Spiral with Bet on Off-Price Backstage Stores,” The Wall Street Journal, November 11, 2015; George Anderson, “Lord & Taylor Is the Latest to Take the Off-Price Route,” Retail Wire, October 27, 2015