Just three months ago, I didn’t believe stores like TJ Maxx and Burlington would be successful in e-Commerce. The off-price market varies from traditional retailers in that brick-and-mortar is the focal point. In the past, value driven consumers found a thrill in physically going into a store and hunting for a deal, something guaranteed at off-price stores. When shopping shifts to online, you’re taking that away. From the brand perspective, there is a wariness of their inventory on an off-price web site when that same inventory might be selling elsewhere at full price.
However, in light of an ongoing global pandemic that is giving us unprecedented volatility in the market and supply chain, it appears there is an opportunity for change. COVID-19 has caused widespread store closings, exceedingly low inventory demand and supply chain disruptions. And when business does return, consumer hesitancy of in-store shopping is expected to be at an all-time high due to fears of contracting the virus. Because of this, spring and summer inventories that were once destined for full-price retail shelves will now be left untouched. And while excess inventory is not new to any brand, the amount of excess will reach unprecedented levels.
Full-line retailers have already turned to e-Commerce to weather COVID-19’s complexities. Could off-price be next? Or furthermore, should off-price be next? As surprised as I am to say this, it might actually make sense.
Leveraging E-commerce Benefits
In the pre-COVID-19 landscape, the off-price market provided an opportunity for brands to offload excess inventory, to earn additional profits and eliminate environmentally harmful waste. But in this new unprecedented reality, off-price retailers don’t have the necessary resources to handle skyrocketed levels of excess inventory — especially when they’re unable to sell products due to in-store closings.
For example, take the industry’s largest off-price retail corporation, TJX, the parent company of TJ Maxx, Marshalls and Home Goods. The company indefinitely shut down both its in-store and online operations in March, and didn’t reopen its online offerings until May 12. Because of this, their product counts are exceedingly higher than this time last year.
And don’t forget about supply chain issues, which are virtually affecting everyone amid the pandemic. In turn, the company’s ability to acquire new products from brands has decreased substantially; creating a large gap between available inventory, open-to-buy dollars and uncertain consumer demand — particularly in regard to in-store shopping.
So this is where increased e-Commerce offerings can serve as a logical channel for off-price retailers to combat this trickle-down effect. E-commerce grew 25% from early to mid-March, which made sense considering online shopping became the only option for consumers following national shelter-in-place orders. TJ Maxx is virtually the only major off-price retailer that offers e-Commerce options. However, if more companies choose to go that route, they can align with the current shift in consumer spending habits, which will earn more profits and heighten their ability to take advantage of what industry analysts are calling, “the greatest apparel clearance in history,” set to take place later this year.
New Opportunities Present New Challenges
While off-price e-Commerce may be a smart move, the traditional challenges the industry faces still remain. Unlike full-price retail, off-price relies on open-to-buy dollars to secure inventory assortments. The assortment itself often comes in piecemeal — three tan T-shirts in varying sizes from one brand, two pairs of shoes in the same size from another. The nature of excess inventory has not historically allowed for the online bulk orders that are needed to properly outfit an e-Commerce site.
In addition, a major component of off-price retail’s appeal is the thrill of in-store shopping that simply can’t be experienced online. Considering brick-and-mortar stores are gold mines for discounts, consumers love hunting for great deals on quality brands. If off-price retailers implement ramped up e-Commerce solutions, they’ll need to formulate strategies to digitally re-create that unique sense of excitement.
How Technology Can Help
It starts with digitizing the supply chain, an act that can help brands gain a better sense of the inventory they do have. On the other side of the coin, they can also invest in digital platforms that help retailers buy and sell inventory more efficiently.
In order to help accommodate for the lost thrill of in-store shopping, off-price retailers can leverage prescriptive analytics solutions to personalize their e-Commerce customer journeys. Prescriptive analytics compiles in-depth data on inventory needs, which can be used to prioritize specific products based on consumer demand and pricing transparency. In turn, an off-price retailer can provide a wide array of the exact items consumers are looking for from the most popular brands on the market — all at a discounted price. This can help re-instill that “hitting the jackpot” feeling coveted by customers.
As we’ve repeatedly seen, the retail market is continuously being forced to iterate and grow as we prepare for the future. While off-price e-Commerce was not the direction I initially saw the industry going, one milestone event has started to change my line of thinking. And in reality, this isn’t the last time it will happen, so retailers need to ensure they are prepared to face future unprecedented challenges. The world of e-Commerce might be an avenue to explore.
Ronen Lazar serves as the Co-Founder and Chief Executive Officer of INTURN. He can speak for hours about the intricacies of off-price, the importance of digital supply chain and the future of retail. Prior to INTURN, he co-founded startups to innovate in the non-profit, entertainment and web directory industries.