October 31, 2018

Increased Consumer Spending Drives Expansion of Off-Price Retailers

Tight job market a key driver of consumption

With unemployment at its lowest level in nearly 50 years, a larger employment base has helped increase the amount of money circulating through the economy. This has kept consumer spending elevated as core retail sales posted a 5.0 percent year-over-year gain in September. Though this figure is below the prior four months, it sits well above the 10-year average of 3.1 percent. While spending was strong across the board, clothing retailers logged one of the largest annual increases at 8.1 percent, significantly higher than the category’s 10-year average of 2.1 percent. Robust sales can be largely attributed to consumers making more discretionary purchases as the economy strengthens. The infusion of more off-price retailers has also helped propel sales in the clothing industry. In addition, health and personal care stores, which includes drugstores, posted a 5.0 percent annual jump last month, roughly 140 basis points above the 10-year average.

Consumers seek value regardless of economic climate

Off-price retailers are growing rapidly with chains like TJX (the parent company of TJ Maxx, Marshalls and Home Goods) and Ross Stores adding 238 and 40 locations, respectively, as part of their 2018 expansion plans. These retailers have proved their stability no matter the economic conditions, making them a highly desired tenant. The treasure-hunt experience they offer brings in shoppers of all income levels; also, generally convenient locations provide relatively quick access to many households. Despite the success these retailers are having, some risk of oversaturation is emerging. In addition to conventional off-price vendors expanding at accelerated rates, department stores including Macy’s and Nordstrom are also expanding their own off-price concepts, adding to the competition.

Unemployment drops to historical low as job creation persists

Last month, the national unemployment rate fell to 3.7 percent, its lowest mark since 1969; the creation of 134,000 jobs in September helped drive this measure down. With the holiday season approaching, retailers are looking to hire more temporary workers; however, many companies will be hard pressed to find seasonal workers amid such low unemployment.

Retailer partnerships used to broaden target market

Kroger and Walgreen’s recently agreed to test a program in which shoppers can pick up Kroger online grocery orders from Walgreen’s. This partnership may potentially expand these retailers’ customer bases as consumer shopping habits are becoming more geared toward convenience. With the retail landscape continuing to evolve, retailers are forming unique partnerships to stay competitive in their respective fields.