Email | Print    Type Size  -  +

Discounters lose their edge

Bargain hunters may soon forsake TJ Maxx for Saks.

By Suzanne Kapner, writer
January 28, 2009: 6:20 AM ET

(Fortune Magazine) -- Like a lot of Americans, I spent the weekend after Christmas scouring stores for bargains. A cute raspberry-colored blazer at Loehmann's caught my eye, not so much for the design but because I had seen the same jacket in Bloomingdale's for roughly the same price ($19.99) just days before.

The jacket was an example of a rare, possibly even never-before-seen phenomenon happening in retail right now: As department stores radically slash prices, they have become discounters in their own right, competing heavily with "off-price" stores such as Loehmann's, TJ Maxx and Filene's Basement.

"Customers are finding equal and in some cases greater values at department stores," says Lazard Capital Markets analyst Todd Slater. "When this type of value compression occurs, department stores have an advantage." And discounters, by that theory, are at a disadvantage.

You might not know it from the numbers. Most of the higher-end department stores such as Saks (SKS), Nordstrom (JWN, Fortune 500) and Neiman Marcus (NMGA) reported double-digit declines in same-store sales for December. By that measure, TJ Maxx and Marshalls, both owned by TJX Cos. (TJX, Fortune 500) , more than held their own with flat December sales. (Loehmann's and Filene's don't report monthly sales.)

But some analysts say sales figures at TJ Maxx and Marshalls might even have been up if these discounters hadn't faced such stiff competition from department stores. "Because you were able to buy stuff as cheap if not cheaper at department stores, that did have a dampening effect on TJX's sales," Slater says.

There's another factor working against discounters. Normally in a recession, consumers searching for the best deals flock to discounters - and when an excess supply of goods piles up at department stores, the discounters can often scoop up first-run merchandise, as opposed to stocking last season's fashions.

But that advantage has been muted this year. Consumer purchases have been so flat across the board that off-pricers, which typically do a large part of their buying during the season - as opposed to department stores, which place orders several months in advance - haven't been replenishing inventory the way they usually do. As a result, their merchandise is more dated.

So far, this reversal of fortune hasn't helped the bottom line of department stores. But offering similar-priced goods in a more pleasant shopping environment than the hand-to-hand combat associated with discounters gives them a leg up - and in this drab economy, every edge counts. To top of page

Company Price Change % Change
Bank of America Corp... 16.03 -0.36 -2.21%
Facebook Inc 58.84 -0.25 -0.42%
Yahoo! Inc 35.97 1.76 5.14%
Intel Corp 26.81 0.04 0.15%
Alcoa Inc 13.32 0.27 2.07%
Data as of 1:52pm ET
Index Last Change % Change
Dow 16,383.59 121.03 0.74%
Nasdaq 4,065.46 31.30 0.78%
S&P 500 1,855.62 12.64 0.69%
Treasuries 2.64 0.01 0.49%
Data as of 2:08pm ET
More Galleries
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
7 businesses Amazon wants to shake up From industrial supplies to educational software, Amazon is about more than just retail and books. More
Don't miss these Tax Day deals From massages and paper shredding to cookies and queso, celebrate the end of tax season with these Tax Day freebies and discounts. More
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.