American shoppers who are still adjusting to price increases continue to be motivated by discounts. The desire to snag a deal has been great for off-price stores — like T.J. Maxx and Ross — where everything is on sale.
In 2024, Nordstrom is leaning into that off-price space with a modest expansion of the Nordstrom Rack business, opening locations in Nebraska, Tennessee, Texas and Indiana. But can these stores compete with the treasure troves that discount shoppers find at other off-price spots?
Nordstrom Rack straddles two worlds, the discount of a T.J. Maxx and the strong Nordstrom brand name. But Mark Cohen with Columbia Business School said it isn’t exactly the best of both worlds.
“I don’t believe you can have it both ways,” he said.
One reason: If your off-price store is too attractive, why would customers go to the more expensive OG store?
“Customers love a bargain,” Cohen said. “The same affluent customers you rely upon in your store seem to also be shopping at the Rack.”
“They are seeing the trade-down effect,” said Jessica Ramirez, an analyst at Jane Hali & Associates. “As consumers are more strapped for dollars, they are likely to lean into off-price and explore what the options are there.”
But filling bargain racks to turn a profit takes a nimble touch that off-price-only stores are better equipped for, she said.
“The biggest success at off-price is you don’t have to buy six months out predicting what the consumer might be doing,” Ramirez said. “You’re able to buy closer to that time, and again, as long as you’re staying close to the consumer, you will see success.”
And Ross and T.J. Maxx buy cheap inventory from thousands of vendors.
“The reason that Ross Stores and a T.J. and a Burlington win is because they get to buy the mistakes of others. They also get to buy product that brands need to move pretty invisibly,” said Simeon Siegel with BMO Capital Markets.
But Nordstrom Rack is getting a lot of its stuff from Nordstrom.
“When a classic department store runs their own version of an off-pricer, it’s very hard to not sell their own mistakes,” he said.
That’s why so few department stores have their own off-price brand.
