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.
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.
The objective of this analysis is to uncover the specific retail group that may represent the most significant threat to the off-price retailers and to identify meaningful changes that these retail groups can exercise if they wish to compete with this emerging group. Figure 4 shows the perceptual map of the results of the analysis of the off-price and discount department store groups and the six attribute importance variables. The horizontal axis distinguishes merchandise selection, fashionable merchandise, and price/value on the right and convenience on the left. The vertical axis contrasts classic apparel on the top and service on the bottom.
The upscale off-price group is clearly positioned on the far right of the map, strongly associated with three very important store attributes – fashionable merchandise, merchandise selection and price/value. The off-price group is also located on the right side but scores much lower on all these attributes than the upscale off-price group. In contrast, the discount group is perceived as highly convenient but not offering a wide selection of fashion apparel or good value. It is quite clear from this map that both off-price groups score occupy a dominant position versus discount department stores on fashion, selection and price/value.
Taken together, our results indicate that if discount department store retailers wish to better compete with off-price retailers in the men’s and woman’s fashion apparel and accessories categories, they need to significantly improve the selection, price, and fashion offerings. Strides should be made by discount department stores to enhance the selection and fashionability of their merchandise and improve the perceived value of this merchandise.
A similar story appears to be the case when comparing the moderate department store group with the off-price groups. Once again, a discriminant analysis was performed using the six attribute importance variables and including the moderate department store group, off-price group, and upscale off-price group. Figure 5 presents a perceptual map based on these functions, with the horizontal axis differentiating fashionable merchandise and price/value on the right and classic apparel merchandise on the left. The vertical axis signifies service and convenience on the top and merchandise selection on the bottom.
As with the prior discussion, both off price groups are positioned on the right side of Figure 5 as strongly associated with price/value and fashion, with the upscale off-price group being more strongly identified with these attributes. In contrast, the moderate department store retail group is clearly associated with classic apparel. A lack of association with price/value and fashion is somewhat surprising given that many moderate department stores, such as Kohl’s and J.C. Penney, market themselves as offering ‘affordable fashion’ to entice potential customers.
Based on our findings, similar recommendations can be made for the moderate department store group as for the discount department store group discussed earlier. Moderate department stores should significantly alter their existing merchandise mix by offering more fashion forward apparel. Furthermore, this new fashion offering also needs to be priced competitively to provide better value to customers. Striking a balance between fashion and value, however, represents a significant challenge for many retailers.
Off-Price Versus Department Store Groups
Next, we compare the department store retail group with the two off-price retail groups by using the same 6 attribute importance dimensions. A perceptual map based on these results is presented in Figure 6. This map shows that the horizontal axis contrasts selection, convenience, class apparel and service on the right and price/value on the left. The vertical axis distinguishes fashion on the top and the opposite - a lack of fashion - on the bottom.
While both of the off-price groups are strongly associated with price/value, the department store group is perceived as offering a broader set of attributes including a reasonably wide selection of classic apparel, convenient layout of merchandise, and moderate service levels. Also notable, none of these three retail groups are perceived as particularly fashionable. This is an important finding given the length of the arrow pertaining to fashion, which denotes the strength of this dimension as a driver of store choice.
Taken together, these results suggest that the department store retail group, while fairly well positioned in terms of merchandise selection and service, should carefully consider offering more fashionable merchandise and better prices to effectively compete with the off-price groups. Meanwhile, these findings also indicate that both of the off-price groups should consider improving a number of attributes related to the customers’ overall shopping experience. Specifically, by offering a wider selection of fashionable apparel merchandise, more convenient merchandise displays, and better service levels, they could create a more pleasing shopping experience that could attract new customers that are not currently patronizing off-price retailers.
Off-Price Versus Upscale Department Store Groups
Finally, we compare the differences among the upscale department store, off-price and upscale off-price groups. This comparison is particularly interesting given the recent initiatives announced by many upscale department stores such as Nordstrom, Saks 5th Avenue, Bloomingdale’s and Neiman Marcus, to directly compete with off-price stores. Once again, we performed a discriminant analysis using the 6 attribute importance ratings and the upscale department store, off-price, and upscale off-price groups.
Figure 7 presents a perceptual map of these results. As this map shows, the horizontal axis distinguishes between price/value on the left and service and convenience on the right. In addition, the vertical axis contrasts fashion on the top with selection and classic apparel on the bottom. Not surprising, both of the off-price groups are positioned on the far left side of the map, strongly associated with offering low prices and strong value. In contrast, the upscale department store group is clearly perceived as offering highly personalized service.
Also interesting is how these retail groups align along the fashion continuum. When perpendiculars are formed from each of these groups to the fashion attribute arrow, the upscale department store group is perceived as offering more fashionable apparel merchandise. This advantage, however, is not as great as one would expect. Furthermore, while the upscale off-price group is perceived as offering at least moderately fashionable apparel, the off-price group is perceived as considerably less fashionable than either the upscale off-price or upscale department store groups.
This advantage in fashion apparel realized by upscale department store retailers is quite noteworthy given the recent strategic maneuvering by this set of retailers to become more competitive with off-price retailers. Our analysis suggests that upscale department stores may have a real advantage over off-price retailers if they can offer highly fashionable merchandise along with competitive prices. A genuine challenge exists for upscale retailers to protect their full-price stores from the threat of cannibalization from the off-price counterpart.
Contributions to Management Practice
Our study provides retail executives with several important insights about the competitive positioning of both off-price and upscale off-price retailers and how they relate to other major groups of retailers. Our study was inspired by two very important trends in retailing. First, the shopping behaviors of customers have changed significantly over the past several years. Customers have become significantly more value driven and have increasingly relied upon off-price retailers for their needs. Off-price retailers, as a result, have benefitted greatly, posting financial results over the past five years that have far exceeded those of full-price retailers. Second, these changes have attracted strong competition from full-price retailers who have recently introduced or greatly expanded their off-price businesses.
Although it is unclear whether these shopping behaviors will continue, it is likely that customers will be at least cautious about future expenditures even when the economy fully recovers. A recent survey, for example, shows that customers will continue to be strongly motivated by aggressive discounting of full-price merchandise and merchandise offering a compelling value-orientation. As such, the retailer of choice will “have a strong value proposition, including a positive price-quality-fashion equation” (Retail Forward April 2010).
If a strong value-orientation remains a strong driver of retail choice, it is imperative that management identifies the retailers that are well positioned for such an environment. Our findings consistently show that the off-price and upscale off-price retailers are very well aligned with the price/value continuum. Specifically, when all retail groups were included in the discriminant analysis (Figure 3), both the off-price and upscale off-price groups were positioned at extreme points along the price/value continuum, signifying the strongest value-orientation among the other retail groups. Following the off-price retailers by a sizable distance were the discount and moderate department store retailers. Although both the discount and moderate discount groups have attempted to offer a strong value-orientation in apparel, our findings indicate that customers may think otherwise, at least when compared with off-price retailers.
Likewise, our results also indicated that neither the discount nor the moderate department store groups were well positioned in terms of fashion. Both of these retail groups can best be described as “anti-fashion” based upon their positions in Figure 3. More emphasis must be given to offering customers significantly more fashionable apparel to remain competitive. One exception was Target, which was the only discount department store retailer perceived as at least somewhat fashionable. Indeed, as shown in Figure 1, Target (see ‘M’) has begun to distance itself from all of the other discount retailers (e.g., Wal-Mart, K-Mart, Value City, Costco and Sam’s Club). In fact, Target was perceived very similarly to two off-price retailers, Marshall’s (‘E’) and A.J. Wright (‘H’), both operated by TJX Companies. Obviously, Target’s efforts to attract new and highly respected designers to produce fashionable apparel with a strong value-orientation have clearly paid off.