Most experts agree that customers’ purchasing behavior has dramatically and permanently changed over the past several years. As Carol Meyrowitz, CEO of TJX Companies notes, “there has been a paradigm shift among customers to value....regardless of whether the economy is weak or strong, value isn’t going out of style” (Chain Store Age March, 2010). Although the Global Financial Crises (GFC) is often cited as the primary driver of this change, additional issues such as a decline in household incomes, escalating revolving debt levels and depressed housing values have also greatly contributed to this value-orientation. For example, research shows that approximately 80 percent of U.S. households experienced declining or stagnating personal incomes over the past four decades (Serpkenci and Tigert 2010). Furthermore, exacerbating an already challenging economic environment, personal credit card debt as a percentage of disposable personal income peaked at 25 percent in late 2010, the highest level in over 60 years (National Bureau of Economic Analysis).
As a consequence of this environment, customers have increasingly turned to off-price and discount retailers who provide a very strong value proposition. For example, data indicate that customers with incomes greater than $100,000 have begun to patronize off-price retailers more frequently than they did prior to the economic downturn (WSJ August 9, 2010). Similarly, Kanter Retail found that about 25 percent of adult female customers planned to visit off-price retailers more frequently in 2010 for their apparel and accessories (Kanter Retail 2010).
Although off-price retailers have existed for some time, little is understood about how they operate or how they are positioned in the overall retailing marketplace. Off-price retailers sell brand-name merchandise at considerable discounts by benefitting from other retailers’ forecasting errors, manufacturers’ overruns, and canceled orders. Many of these retailers have also established exclusive supply relationships with manufacturers to guarantee a more consistent selection of branded merchandise within their stores. Such initiatives have resulted in impressive financial performance that far exceeded those of even the best department store retailers. According to one study, major off-price retailers achieved 18 percent greater nominal sales growth and 10 percent greater compound annual growth rate over the past five years than major department store retailers; only discount department stores achieved similar growth during this period (Kanter Retail 2010).
Such financial performance has not gone unnoticed by other retailers, however (WSJ August 9, 2010). Significant increases in competition, from new store formats to an expansion of existing outlets catering to these customers have recently occurred (Kanter Retail 2010). Much of this competition has come from upscale, full-price retailers such as Saks Inc., Bloomingdale’s, Nordstrom, Lord & Taylor and Neiman Marcus Group, who were constrained by unfavorable economic conditions from adding additional full-price locations. With few strategic alternatives, these retailers have moved aggressively into the off-price marketplace to generate growth (WSJ 8/9/2010). For example, Nordstrom Inc. opened significantly more Nordstrom Rack stores (10) than full-price stores (2) during 2011 (
http://about.nordstrom.com). Meanwhile, Saks 5th Avenue added 6 new Off 5th locations in 2011 but no new full-price locations (
https://www.saksincorporated.com). In addition, Bloomingdale’s opened 3 outlet stores and 1 full-price location in the U.S. in 2011 (
http://www1.bloomingdales.com).
Despite the relevance of this sector of retailing, especially for upscale retailers, very little is understood about the unique competitive characteristics of off-price retailers or how they compare to other types of retailers. This note compares customer perceptions of off-price and upscale off-price retailers with four major groups of retailers: 1) discount department store retailers, 2) moderate department store retailers, 3) department store retailers, and 4) specialty department store retailers.
Data Collection and Procedure
The data for this study were collected by a prominent marketing research firm using a random, representative sample drawn from four primary metropolitan cities in the United States. A total of 2,761 telephone interviews were conducted in Boston (n = 756), Chicago (n = 601), New York City (n = 704) and Washington D.C. (n = 700).
Respondents were asked about their awareness (aided and unaided) and general familiarity with many different major retailers selling men’s/women’s apparel and accessories. These questions were followed by measures about the specific retailers that respondents’ actually patronized within the previous six months. Next, respondents were asked about the specific retailer they shopped most often across a variety of shopping occasions including casual clothing, dress clothing, accessories, children’s clothing, special occasions, and home furnishings.
Respondents were then presented with a battery of measures that asked them to rate the importance of various store attributes and their personal shopping motivations. Nineteen items were used to assess the six dimensions of store attribute importance which included merchandise selection, fashion apparel merchandise, classic/everyday apparel merchandise, price/value, convenience, and service.
Following these measures, respondents were then asked to name the specific retailer that they believed was best known for having a prestigious reputation, designer name brands, quality brands, convenience, competitive prices, ease of locating merchandise, trouble-free return policy, personalized service, knowledgeable employees, and others. Finally, demographic information was also requested.
Measures
Two variables that were central to this study were the retailer that was shopped most often for men’s and women’s apparel and accessories and store attribute importance. Overall, respondents named 62 different retailers that they shopped most often. The specific retailers are listed in Table 1.
For some of our analysis, it was important to categorize these 62 specific retailers into seven groups. Groups were formed to reduce the number of specific retailers named by respondents and simplify the analysis. The specific retailers were placed into groups based on an existing categorization of retailers developed by Kopp, Eng and Tigert (1989). The final set of retailers and corresponding retail groups are presented in Table 1.
The second variable used extensively in our study was store attribute importance. Measures for this variable were based on existing and frequently used measures from Bellinger, Robertson and Greenberg (1977) and adapted for an apparel and accessory context. A total of nineteen items were used to assess store attribute importance. Multiple items were used to assess the six dimensions of store attribute importance. The dimensions focused on various characteristics of a retailer such as merchandise selection, fashion apparel merchandise, classic/everyday apparel merchandise, price/value, convenience, and service. The specific items used to measure each dimension of store attribute importance are presented in Appendix A.
Perceptual mapping techniques are used frequently to identify potential opportunities within an existing marketplace and expose various alternatives for a company to modify its position to better match customers’ needs and improve financial outcome. Our goal with this research was to examine the unique competitive positioning of off-price and upscale off-price retailers as compared to other types of retailers.
We chose to use a multivariate data analysis technique known as discriminant analysis for this study because it is best suited for the reduction or grouping of data.
We performed a series of discriminant analyses for this study and perceptual maps were derived for each discriminant analysis performed and shown in Figures 1-7. The specific location of each retailer or retail group on the perceptual maps was derived by plotting the corresponding mean scores on both the horizontal and vertical axes. For example, in Figure 1, Target (designated as M) scored -0.342 on the horizontal axis (function 1) and -0.142 on the vertical axis (function 2), placing it in the upper left quadrant of the map. Meanwhile, Nordstrom (designated as V), scored 0.857 and -0.117 on the horizontal and vertical axes, respectively, is positioned in the lower right quadrant in Figure 1. In the next several sections, we present the detailed results of several discriminant analyses along with the corresponding perceptual maps.
All Retailers and All Attributes
We begin by presenting the results of analysis intended to differentiate among all the retailers mentioned by respondents as shopped most often. Thus, we performed a discriminant analysis that included all of the items used for store attribute importance (n = 19) and all of the retailers (n = 62) shopped most often (listed in Table 1). We chose to include all retailers and all attribute importance items to provide an unconstrained examination of the overall retail marketplace.
Figure 1 presents a perceptual map of these two discriminant functions along with the locations of all of the retailers. Each of the 62 retailers, identified by the nomenclature listed in Table 1 (see letters and numbers to the left of the retailer name), was also plotted on this map.
Figure 1 displays both the store attribute importance and the specific retailer centroids on the first two discriminant functions. Specifically, the horizontal dimension contrasts low price and large assortment on the left and personal service, prestigious upscale reputation and classic apparel on the right, while the vertical dimension distinguishes unique, designer fashions, and best brand discounts on the top and conservative, everyday fashions, and ease of finding and coordinating outfits on the bottom. Overall, this perceptual map provides a fairly comprehensive view of the retailing market ‘space’.
Several important observations can be made about Figure 1. The groups of retailers listed in Table 1, are generally positioned within a similar quadrant in Figure 1. For example, all of the upscale off-price retailers are positioned in the upper left quadrant of the map (see A, B and C). Furthermore, all but one of the discount department stores are located in the lower left quadrant (see N, O, P, Q and R). The outlier is Target (M) which occupies a unique position in the upper left quadrant of the map. This is not entirely surprising given Target’s well-established image of providing relatively fashion forward apparel at discount prices.
In addition, the specialty store group did exhibit greater dispersion than originally expected as shown in Figure 1. One explanation for this dispersion may be due to the very wide variety of retailers included in this group. Another explanation may be that some of the less popular retailers had very low sample sizes which can produce less stable centroid scores. Taken together, Figure 1 provides a fairly comprehensive positioning of most of the major retail chains currently competing in the U.S. Thus, it is quite useful for simultaneously comparing the images of a multitude of retail chains.
Retail Groups and All Attributes
In our next step, we simplified the analysis by including only seven retail groups, but all of the nineteen store attribute importance measures. Figure 2 presents a perceptual map of the results.
Consistent with the results shown in Figure 1, the horizontal dimension contrasts low price on the left and personalized service, prestigious upscale reputation, and classic apparel on the right. The vertical dimension distinguishes best discounts on top U.S. and European brands and unique, designer fashion apparel on the top and conservative, everyday fashions and convenience (easy to find, easy to locate) on the bottom.
The centroids for each of the seven retail groups were also plotted on the perceptual map. As Figure 2 shows, the upscale off-price group is perceived as offering highly fashionable brand name apparel at discount prices. Meanwhile, the off-price group offers somewhat less fashionable apparel than the upscale off-price group. Also interesting, by forming perpendiculars between each of the two off-price groups and the price/value lines on the map, both groups offer customers a similar price/value proposition.
Also noteworthy, the discount and moderate department store groups occupy similar positions in Figure 2. Both groups are located in the lower left quadrant and are perceived as offering similarly conservative, everyday fashion apparel. The findings also indicate that while both groups offer compelling price/value propositions, the discount department store group provides this merchandise at a better price/value point.
Meanwhile, the department store group is perceived as offering moderately fashionable apparel along with limited personalized service from employees. The specialty clothing store group, while occupying a similar position in Figure 2, is perceived to have slightly more fashionable apparel with higher personalized service than the department store group. Not surprising, the specialty department store group is perceived as offering the most fashionable apparel and highest personalized service.
Retail Groups and Six Attribute Importance Variables
Our next discriminant analysis includes six attribute importance variables and seven retail groups. The six store attribute importance variables (latent variables) were computed by taking the average of the attributes that loaded on each factor.
A perceptual map of this analysis is presented in Figure 3. This map indicates that the positions of the retail groups are quite consistent as those shown in Figure 2. Specifically, the upscale off-price and off-price groups once again jointly occupy the upper left quadrant of the map, with the upscale group scoring higher on both fashion apparel and price/value. Most noteworthy, both of the off-price groups were perceived as offering the highest value on apparel, surpassing even the discount department store group by a wide margin. Another interesting observation, the upscale off-price group is perceived as offering apparel that is considered somewhat more fashionable than the department store group while offering it at a significantly better price/value. Only the specialty department store group is perceived as offering more fashionable apparel than the upscale off-price group.
For the next set of analyses, we begin to directly compare the off-price groups with other retail groups. We begin by examining differences among the off-price, upscale off-price, and discount department store groups.