Off-Price Department Stores Rethinking Locations
After being one of the few retail bright spots for several years coming out of the great recession, off-price department stores — such as Macy’s Backstage and Nordstrom Rack — appear to be reassessing their business models and making changes to their location strategies following several quarters of declining sales.
In an article written by Mark Heschmeyer for the real estate information firm CoStar, a recent rating agency survey showed several contributing factors for the recent sales declines in same-store performance.
- Retailers rushed to open more off-price stores when demand was strong leading to the sector being “over-retailed” and prompting more competitive pricing and discounting within the sector.
- Aggressive sales, promotions and coupons seem to have become a pervasive part of the full-line store strategy.
- Rapid growth and convenience of e-commerce shopping is also taking its toll on off-price store sales, as it has with other bricks-and-mortar formats.
This report on the reason for recent sales declines in off-price outlets in relation to national and Philadelphia commercial properties is being offered through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
“The internet has bred a smarter customer: she knows where to get the best price; she knows if a bag is made for the outlets — or is the real deal. Sometimes she cares, sometimes she doesn’t, but she does want a great experience, whether it is easy parking, unique stores she can’t find everywhere, or amazing dining,” said the head of one retail advisory firm. “She also wants a smart, educated and engaged store associate. If she can’t get that, she gives up and goes to another store, or shops online.”
How this all plays out in the commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – is still too early to tell, but it seems to be clear that retailers are reassessing their off-price business models as far as store locations are concerned, the study noted.
Macy’s recently announced a change in location strategy for its Macy’s Backstage concept with all the announced openings for new Backstage stores slated to be located within full-line Macy’s stores rather than as standalone stores among other U.S. and Philadelphia commercial real estate properties.
“We are pleased with the performance of our Backstage stores within our Macy’s stores and are excited by the potential of this concept. It is the only mall-based, off-price concept which we now are realizing gives us a competitive advantage,” Karen M. Hoguet, CFO of Macy’s told analysts during the company’s recent quarterly earnings conference call. “Details are still being developed, but we plan to expand it aggressively next year.”
Macy’s executives added that they planned to start experimenting by positioning Backstages in “larger doors” in the future, and were looking at different parts of the online stores where they could be placed throughout both U.S. and Philadelphia commercial real estate listings,
It’s a smart concept, said the retail advisory firm source. “Having Macy’s incorporate its off-price channel into its stores is smart, given that its off-price concept name doesn’t have a lot of brand equity. Their customer is used to the ubiquitous couponing in its stores, and many of its boxes are over-sized and could use a merchandising refresher.”
In contrast, Nordstrom is opting to increase the distance between its Nordstrom Rack locations throughout the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – and the retailer’s full-line offerings, according to the study’s results.
Approximately 42% of its off-price stores among national and Philadelphia commercial real estate listings are currently located within five miles of the nearest full-line Nordstrom store. That’s changing as only 17% of new Rack stores scheduled to open will be located that close to an existing Nordstrom.
While the change in distance between stores when considering all U.S. and Philadelphia commercial real estate listings, could be the result of available real estate, it could also signal that the retailer is trying to mitigate the potential for cannibalization and brand dilution.
“Having plans that were now in hindsight too aggressive caused our teams to have to pull back a little bit,” Blake Nordstrom, president of Nordstrom’s told analysts in a recent conference call. “We think that culminated a little bit in that downward trend that we saw in the third quarter.”
Nordstrom Rack remains a meaningful part of the business, he added.
“Overall, our total off-price business is $5 billion,” he said. “It’s a healthy business and we see lots of opportunities and we are encouraged by it.”
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