October 2, 2013
Off-Price Chains Go Online
A number of reasons have been given for off-price retailers to stay away from e-commerce.
Some say one of the main attractions of the concept, the treasure hunt in stores, gets lost when moved online. Others point to supply issues. Off-price retailers have a limited supply of goods to work with (that’s why they’re off-price to begin with) and splitting inventory between stores and e-commerce sites could backfire.
And, then there are shipping costs to deal with. Off-price shoppers are, by their nature, always looking to save money. How will off-price sites maintain their price mystique if their frugal customer base has to, directly or indirectly, pick up the cost of shipping?
Despite the various reasons for off-price retailers to avoid launching e-commerce sites, it’s clear that’s where they are moving anyway. Nordstrom Rack, according to reports, has had success online as well as in stores when it comes to moving merchandise.
Recently, T.J. Maxx relaunched its website, which closed in 2005 after one ho-hum year of operation.
"Their business has been so strong without it," Michael Baker, an analyst for Deutsche Bank Securities, told The Boston Globe. "There hasn’t been a great urgency to launch."
The most recent off-price chain to launch an e-commerce site is Saks Off 5TH.
"This is a significant milestone for Saks Off 5th as the company rounds out our omni-channel offerings," said Robert Wallstrom, president of Saks Fifth Avenue OFF 5TH. "In addition to our 70 nationwide stores, the e-commerce site is yet another platform through which we can provide our curated off-price shopping experience."
"We designed the site to be a sleek, modern online reflection of the elevated design of the OFF 5TH stores with a strong value message. We think it will become a best in class off price fashion destination online," said Michael Burgess, president of Saks Direct.
BrainTrust
Recent Discussions
Discussion Questions
What do you see as the challenges and opportunities for off-price chains opening e-commerce sites? Will operating e-commerce sites be a net positive or negative for off-price retailers?
Poll
Well, I don’t think it’s a supply question. That argument has always been weak. The notion of buy-now-or-lose retailing has worked just fine for the Home Shopping Network, QVC and eBay, so I assume it can also work for Saks.
The real issue is whether so-called omni-channel retailing is really good for everyone, or at least their bottom lines, and I guess that will be determined on a company-by-company basis.
The challenge is whether or not the addition and/or integration of a new channel and all its attendant costs and complexity is really justified by increases in consumer demand.
Off-price chains’ inventory tends to have a limited amount of one type of item. They also turn over their inventory more quickly than traditional retailers. I could see some issues with OOS and keeping the site up to date. That said, this could play in their favor. Similar to the shopping channels, they could show how many items are left in stock, causing a sense of urgency on the part of the customer. “Only 2 left, I better buy now!”
The approach will ultimately determine the success of online for off-price retailers. If they treat it like traditional retail, I am less optimistic.
If off-price chains are opening omni-channel opportunities because everyone else is, they are not likely to be successful. If their consumers would like omni-channel access, or if they can expand their consumer base by making their offering accessible to those who are not near their stores, then investing the money to create an exciting online shopping opportunity to provide the same excitement as in-store shopping will be a good investment. However, making an omni-channel approach successful will be costly. Will the approach attract enough consumers who want to buy? If it does, do you have enough inventory and the shipping infrastructure to make it work?
While I do think opening e-commerce sites should be something all retailers do, I question how this will replace the thrill of shopping for hidden treasures in these off-price brands.
Gasoline is $4.00/gallon and staying there. So how much is a fifty cent pair of socks if I drive 10 miles and look for ten minutes for a place to park to get them? The problem off-price chains are forced to contend with is the same as all of the other stores, less store traffic and smaller receipts with little or no impulse buys. They too are figuring out how to bring the mountain (of goods and services) to the people (wherever they are).
Consumers owning an insatiable appetite for in-store treasure hunting will continue to do so as time and disposable income allow. Retailers of all types must expand marketing efforts to stay alive.
As a side note, have you noticed that TV commercials still only talk about produce and services? Nobody is publishing information in commercial format on how to access, search and use their e-commerce sites on a computer, tablet or smart-phone. Seems to me there is much to discuss with nobody ready to talk about these things in an entertaining way.
Aren’t there limited inventory, off-price sites already quite popular and successful online? RuLaLa, Gilt, Ideeli?
The reasons not to do it are pretty weak:
- Losing the treasure hunt-those who physically want to do it will. But, others can hunt EVERYDAY on their computers without ever leaving their home.
- Supply issues? Handling online inventory is more efficient than in store. Adding one warehouse may generate more business than adding 10%-20% more stores, with considerably less inventory.
- The cost of shipping? Operating online including shipping beats the cost of operating and staffing a store.
- The mystique? Why would it be different online than in-store? Off-price is mystique. Shoppers actually believe they are getting regular merchandise at “special” prices, when in fact they are getting “special” merchandise (read less quality) at a not so special price.
I think sooner or later, most types of retail need to venture online and offer e-commerce purchasing opportunities. The argument that it reduces the treasure hunt, while factual on a certain level, is also an opportunity. I treasure hunt all the time on Amazon, resulting in many purchases!
Like all such decisions, it needs to be made based on the consumer’s expectations. As the current younger shoppers grow into the mainstream consumer population, the expectation of online/mobile access to a retailer’s offer becomes obvious. As the other commenters have opined, the traditional reasons for off-price retailers to remain offline are non-starters. Each of them simply must create the appropriate, brand-right platform and get on with it.
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Well, I don’t think it’s a supply question. That argument has always been weak. The notion of buy-now-or-lose retailing has worked just fine for the Home Shopping Network, QVC and eBay, so I assume it can also work for Saks.
The real issue is whether so-called omni-channel retailing is really good for everyone, or at least their bottom lines, and I guess that will be determined on a company-by-company basis.
The challenge is whether or not the addition and/or integration of a new channel and all its attendant costs and complexity is really justified by increases in consumer demand.
Off-price chains’ inventory tends to have a limited amount of one type of item. They also turn over their inventory more quickly than traditional retailers. I could see some issues with OOS and keeping the site up to date. That said, this could play in their favor. Similar to the shopping channels, they could show how many items are left in stock, causing a sense of urgency on the part of the customer. “Only 2 left, I better buy now!”
The approach will ultimately determine the success of online for off-price retailers. If they treat it like traditional retail, I am less optimistic.
If off-price chains are opening omni-channel opportunities because everyone else is, they are not likely to be successful. If their consumers would like omni-channel access, or if they can expand their consumer base by making their offering accessible to those who are not near their stores, then investing the money to create an exciting online shopping opportunity to provide the same excitement as in-store shopping will be a good investment. However, making an omni-channel approach successful will be costly. Will the approach attract enough consumers who want to buy? If it does, do you have enough inventory and the shipping infrastructure to make it work?
While I do think opening e-commerce sites should be something all retailers do, I question how this will replace the thrill of shopping for hidden treasures in these off-price brands.
Gasoline is $4.00/gallon and staying there. So how much is a fifty cent pair of socks if I drive 10 miles and look for ten minutes for a place to park to get them? The problem off-price chains are forced to contend with is the same as all of the other stores, less store traffic and smaller receipts with little or no impulse buys. They too are figuring out how to bring the mountain (of goods and services) to the people (wherever they are).
Consumers owning an insatiable appetite for in-store treasure hunting will continue to do so as time and disposable income allow. Retailers of all types must expand marketing efforts to stay alive.
As a side note, have you noticed that TV commercials still only talk about produce and services? Nobody is publishing information in commercial format on how to access, search and use their e-commerce sites on a computer, tablet or smart-phone. Seems to me there is much to discuss with nobody ready to talk about these things in an entertaining way.
Aren’t there limited inventory, off-price sites already quite popular and successful online? RuLaLa, Gilt, Ideeli?
The reasons not to do it are pretty weak:
I think sooner or later, most types of retail need to venture online and offer e-commerce purchasing opportunities. The argument that it reduces the treasure hunt, while factual on a certain level, is also an opportunity. I treasure hunt all the time on Amazon, resulting in many purchases!
Like all such decisions, it needs to be made based on the consumer’s expectations. As the current younger shoppers grow into the mainstream consumer population, the expectation of online/mobile access to a retailer’s offer becomes obvious. As the other commenters have opined, the traditional reasons for off-price retailers to remain offline are non-starters. Each of them simply must create the appropriate, brand-right platform and get on with it.