Diana Smith
Diana Smith is the Associate Director for Mintel’s US Retail and Apparel Reports. Diana writes reports and explores trends in the retail and apparel categories.

US consumers continue to place priority on finding good deals and value-oriented brands are thriving in the currently turbulent apparel industry. Outlet malls, discount stores and other specific off-price retailers have proven that there is a sustainable market for value retailing. In fact, according to Mintel’s Women’s Clothing US 2015 report, some 41% of female clothes buyers think most items are overpriced and always avoid paying full price.

Consumers love the pursuit of bargain hunting as it gives them a sense of pride presenting opportunities for off-price retailers to provide a compelling option to budget shoppers who seek name brands at discounted prices. This behavior is not restricted to recessionary times. Despite a crowded and maturing market segment, more retailers are capitalizing on this insight.

Major brands make the leap to off-price

Retailers such as Old Navy and Nordstrom Rack have already achieved success by reaching value-conscious consumers, and other retailers are following suit with similar off-price store formats. Macy’s is the latest entrant in the off-price sector, opening three new Backstage stores in New York City metro areas, with three more set to open this year. The retailer aims to connect with its core target of young Millennial moms by including store features like trend boards, mobile point-of-sale checkouts and charging stations for mobile devices called “juice bars.”

The store plays up the Backstage name in a whimsical way with managers called “directors,” fitting rooms referred to as “dressing rooms” and staff a part of the “stage crew.” Even more enticing to consumers, Backstage discounts range from 20-80% off regular prices. Macy’s Inc. is quickly following up on its Backstage initiative by announcing plans to open new Bloomingdale’s Outlet stores in November 2015 in select cities on the East and West Coast.

Earlier this year, J. Crew entered the off-price sector with its J. Crew Mercantile companion brand that will initially sell the same products designed for and sold in J. Crew’s outlets. The brand expects to expand distribution into shopping centers and malls. Kohl’s is also reportedly opening a new store dubbed “Off Aisle by Kohl’s” later this year.

Implications for retailers

49% of female Baby Boomers never pay full price for clothing compared to 33% of Millennials

The flurry of department and specialty stores to open offshoots aimed at cost-conscious consumers indicates that they see lasting power in this market, regardless of the state of the economy. With more major brands entering the market, it will become increasingly challenging for off-price retailers to maintain market share. They must differentiate on something other than price to effectively compete.

Retailers that have merely extended their main brand into an offshoot off-price brand particularly need to provide a clear point of differentiation between the off-price and the main brand, or there is risk of confusing consumers or cannibalizing sales of the home brand. These retailers also must consider other demographics that drive their namesake stores. For example, nearly half (49%) of female Baby Boomers never pay full price for clothing (vs 33% of Millennials) and 66% say comfort is more important than style compared to only 40% of Millennials.

US consumers continue to place priority on finding good deals and value-oriented brands are capitalizing on – and benefiting from – this behavior, but entering the market at this stage remains a risky proposition for retailers. They must carefully consider how off-price brand extensions will differ from a namesake brand while also considering how to retain consumers who are willing to pay full or higher prices at a namesake brand if a lower priced option is suddenly available.

Diana Smith is a Senior Retail and Apparel Analyst at Mintel. She brings a unique background and perspective having previously spent her career growing up in advertising agencies, specializing in media planning and strategy.