STORE SPACES

Moody’s: No letup in sight to off-price growth

BY Marianne Wilson

Off-price retailers will remain among the top performers in the U.S. retail industry during the next 12 to 18 months.

That’s according to a new report from Moody’s Investors Service. The outlook is not as positive for department stores, which will continue to struggle as they seek to level the playing field with both off-price and online vendors.

Moody’s expects operating income in the off-price sector to grow 6.9% in 2017 and 5.4% in 2018. Department stores will see operating income decline 9.3% this year and 2.7% in 2018.

“Off-price retailers continue to outperform other sectors of the U.S. retail industry largely because they offer the kind of lower-cost, higher-value products and shopping experience many consumers are looking for,” said Moody’s analyst, Christina Boni. “Off-price stores are far outstripping department stores, which in contrast are still struggling with outmoded formats and supply chains that can’t keep pace with customer demand.”

The report noted that department stores are mostly taking the right steps to resurrect their businesses, but it’s too early yet to know how well they’ll succeed. In particular, department stores been exploring new ways to drive traffic through e-commerce offerings and partnerships to spur growth. While Kohl’s Corp. has its own online platform, for example, in addition it offers Amazon products at 10 of its stores and accepts Amazon returns at 82 of its locations.

Despite their lack of e-commerce penetration, off-price retailers have succeeded where department stores have foundered due to their focus on delivering major label brands at significant discounts to value-hungry consumers, Moody’s said. Off-price vendors also outperform the broader universe of U.S. apparel-focused retailers.

While apparel sales make up the bulk of their sales, off-price retailers have been increasing their product mix in the higher-growth and less competitive home products category. Moody’s estimates that home product sales at off-price stores grew 9.9% in 2016, compared with 7.8% for the off-price sectors overall growth.

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