The Off-Price Playbook: How TJX, Ross and Burlington Are Winning Market Share

Off-price retail is taking market share from department stores and full-price brands, and the gap is widening. The three biggest players are pursuing very different store and inventory strategies to keep it going.

How off-price retail giants are re-engineering growth to continue winning market share.

The top off-price retailers, TJX Cos., Ross Stores and Burlington Stores, are feeling the benefits of a retail landscape characterized by high interest rates, persistent inflation and increasingly discerning consumers, resulting in significant double-digit sales increases for two of them, thereby adding literally billions of dollars of sales growth, at a time when the overall retail industry is essentially flat.

How Do TJX, Ross and Burlington Differ?

All three chains specialize in selling off-price apparel and home goods with a focus on popular, branded products, and, in terms of their growth, are eating into the market share of mainstream department stores and even individually branded stores selling similar products at full price. Their methods, however, are far from identical. In strategic terms, their ongoing success can be attributed to the way they manage their inventories, secure locations and configure individual stores.

The biggest of the three, TJX Cos., is behind multiple retail banners of T.J. Maxx, Marshalls, HomeGoods, Homesense and Sierra. TJX frequently opens multiple banners in the same shopping center or on the same street. It is not unusual to see a T.J. Maxx or Marshalls stored next to a HomeGoods or a Sierra in a strip mall.

By clustering various banners within the same retail location, TJX creates a singular off-price retail destination that serves as a one-stop shopping experience for consumers seeking a wide array of products at deep discounts. A smart move. In terms of operations, TJX benefits from a cluster of retail locations by facilitating efficient logistics and the procurement of favorable lease terms.

Home décor merchandise is presented at locations operated by HomeGoods or Homesense, enabling the retail company to capture a greater portion of the consumer’s disposable income. In addition, TJX’s retail stores do not cannibalize one another, rather they benefit from the constant flow of shoppers engaged in a “treasure hunt” for deeply discounted products offered by individual banners such as T.J. Maxx and Marshalls that sell fashion merchandise at deeply discounted prices.

In terms of retail strategy, Burlington Stores is doing the opposite of TJX in that it is locking into smaller footprints for its stores. This is a dramatic architectural and operational shift for the off-price retailer that used to occupy huge, full-line department store spaces of 50,000 to 80,000 square feet or more. The focus is on growing a new store prototype of approximately 25,000 square feet.

The reasoning behind the move is simple. The original Burlington footprint required a huge amount of stock in order to fill the space. As a result, the retailer had to bear high storage costs and had to implement a lot of sales promotions in order to get rid of slow-moving or excess stock. A smaller Burlington footprint allows for more selective merchandising. In turn, stock is sold very quickly, and operating costs and logistics are significantly reduced. By moving into smaller store formats, new locations can be opened quickly and flexibly. As a result, prime locations at endcaps of strip centers, vacant stores previously occupied by pharmacies and optimal locations in highly developed and densely populated suburbs can be opened quickly.

For Ross Stores, operators of Ross Dress for Less off-price discount stores and the smaller dd’s DISCOUNTS stores, the strategy is to be extremely selective in selecting locations. The focus is on top suburban strip centers in Sunbelt states and high density, value retail markets across the country. The typical store size is approximately 22,000 to 30,000 square feet or so, with their goal of operating stores in the highest volume locations with the lowest possible operating costs to maximize their ROI.

In addition, Ross’ units are designed to be flexible so that they can fit into a multitude of retail locations and settings to service their target customer base.

Which Off-Price Chain Earns the Most Per Square Foot?

All three companies report high sales per square foot in their stores. The highest sales per square foot among these retailers is TJX Cos. with $430 to $450 per square foot of domestic retail space, which compares to Ross Stores’ $320 to $340 per square foot. TJX’s higher sales per square foot is due to the greater sales density of its dual-anchor centers. 

Burlington Stores’ same-store sales for its smaller stores average $220 to $240 per square foot of retail space, which is decreasing in recent years. However, recent smaller-format stores opened by the chain are reporting sales per square foot higher than this average, suggesting that productivity at these stores may be increasing.

How has Wall Street reacted? Mostly by driving value up. The chart below compares the five-year change in market capitalization for Burlington Stores (BURL), Ross Stores (ROST) and The TJX Companies (TJX):

How Has Wall Street Valued the Off-Price Giants?

TJX Cos. continues to dominate the off-price sector, nearly doubling its market capitalization over the past five years with robust growth of +79.7% to reach over $162 billion. While their comparable sales increases have been modest, it is on a much larger sales base and they have plans to open large number of new stores

Ross Stores has also demonstrated strong momentum, expanding by +74.4% to surpass $70 billion. However, it is experiencing by far the highest comparable sales performance under new leadership, improvements in in-store experience and a focus on adding younger customers

Burlington Stores experienced a slight contraction in market capitalization of -10.6% over the five-year period, settling around $17.4 billion. However, they are achieving significant increases in merchandise margins, including through more effective inventory management

What Is Each Off-Price Retailer’s Growth Plan?

Moving forward, the long-term growth prospects are rooted in distinct strategies. Here’s a breakdown:

From here, TJX Cos, Burlington and Ross, will continue to grow in the physical retail marketplace while competing among themselves for market share. Flexibility in their store formats is a major factor for their continued success in the physical retail marketplace and growth. 

As I’ve written about prior, their challenge lies in decelerating department store closures, which shrinks available inventory for the off-pricers to gobble up. In addition, AI-powered technology is making inventory management for full-price retailers more efficient — which adds to depleted stock for the off-price brands to sell. On the other hand, the recent EU ban on destroying unsold clothes, accessories and footwear should significantly increase supply of valued product to the mass and off-price retailers, as should the high rates of online shopping returns (online returns are often discarded rather than undergoing detailed inspection, returns to DCs and/or stores). 

It will be interesting to see how the next few years unfold but one thing is for certain, the off-price giants will continue to take market share from mainstream department stores and traditional home and apparel full price stores.

Sources:

TJX Companies, Inc. Annual Reports and Quarterly Earnings Presentations.

Ross Stores, Inc. Investor Relations Reports and Annual Filing Statements.

Burlington Stores, Inc. Strategic Update and Quarterly Financial Results Briefings.

Sourcing Journal, Retail Economics and Real Estate Coverage on Off-Price Formats and Store Productivity Metrics.

Women’s Wear Daily (WWD), Financial and Retail Analysis on Off-Price Expansion and Cluster Real Estate Strategies.

Antony Karabus is a Retail Advisor.

Related Karabus opinion article: “The Myth of the Resilient American Consumer Is Crumbling”

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