Moody's: US off-price apparel and home retailers continue their rapid growth

The US off-price apparel and home products segment continues to grow rapidly as consumers who developed a taste for cheaply priced luxury goods during the recession keep up their hunt for bargains, Moody's Investors Service says in a new report. The off-price segment is expected to outperform the broader US apparel and home sector for at least the next five years.

Off-price stores sell a wide array of goods from major-label brands at 20% to 80% less than their original price. Offerings include clothing, jewelry, cosmetics, kitchen goods, linen and home décor.

"The off-price segment will continue to do better than the overall apparel and home sector into the foreseeable future," says Vice President - Senior Credit Officer, Scott Tuhy. "Major incumbents TJX, Ross Stores and Burlington are leading the way at a time when the broader and highly fragmented apparel sector is growing at a tepid pace."

Moody's expects growth in the off-price segment to be in the range of 6% to 8% over the next five years, compared with 4% for the wider apparel and home industry, Tuhy says in "Off-Price Apparel and Home Will Continue to Lead Overall Retail Sector." And the segment continues to gain traction. Macy's, Inc. is the latest company to seize on the concept, announcing it will open six Macy's Backstage off-price stores in metropolitan New York this fall, while Nordstrom, Inc. opened 27 of its 31 planned Nordstrom Rack stores last year.

While there is still plenty of room for competitors, they'll face challenges in competing with the established players. "Consumer appetite for discount luxury is such that newcomers will hardly make a dent in the incumbents' already significant market share," Tuhy says. "While high-end department stores will continue to open off-price stores at an above-average pace, we expect incumbents such as TJX, Ross Stores and Burlington to remain the leaders in the off-price segment."

Those companies benefit from significant scale, flexible purchasing ability, strong vendor relations and adaptable real estate strategies, Moody's says. High demand for bargains and a lack of supply constraints will continue to boost their growth. Indeed, collectively these retailers plan to open 185 new stores this year, following up on the 180 that opened their doors in 2014.