LisBiz Strategies: You’re going to need a bigger closet

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June 8/15, 2015; Volume 30/Number 1

By Lisbeth Calandrino

The headline for this column refers to the tagline of DSW, the high-end discount/off-price shoe store. In the last few years, several well known discount stores have disappeared, but it appears this market is starting to grow again, this time with different players as Macy’s and Kohl’s are both testing new venues.

Why have an off-price store? “For brands, the discount segment represents a huge revenue channel,” said Alison Jatlow Levy, retail strategist for Kurt Salmon, an international consulting firm. “The challenge for brands is how to manage it without negatively impacting their images.”

Contrary to what you may think, stores such as TJ Maxx and Ross are not looking for price-conscious customers; they still rely on the consumer with discretionary income who is always out for the steal and shops continually.

According to the compound annual growth rate (CAGR), the successful off-price store shows an annual growth of 10% while the average rate is 4%. Their customers are looking for deals, but not just any deal: this is the “best for less” customer.

I’ve always wanted a blue Ralph Lauren wool blazer. When I first started looking in the ‘90s, they cost $500. The price was way above my budget. While on a hunting expedition in New Jersey, I found the blazer on the floor at Marshalls. It was a little dusty, but fit perfectly and cost only $75. To this day, I marvel at my good fortune.

The off-price market is actually different from the discounters. It indicates that you can find a designer or high-priced piece of merchandise for less money. These stores are often cheaper than the discounters but offer better merchandise.

Success in the discounted market depends on a business’ ability to buy cancelled orders, overruns and discontinued products for it to stock. These businesses must be skillful at turning the merchandise quickly if they are going to make a profit. In addition, they need to rely on the following four internal systems to make it work:

1. Operational efficiency

This is simply defined as the ratio between the input to run a business operation and the output gained. Basically, the profit gained should be higher than the cost to run. Operational efficiency should be the focus of any business.

 2. Vendor relationships

In order to purchase goods, a business must know where to find them and how to buy them at the right price. Establishing a good vendor relationship is another way to network and is crucial for any business. The vendor must know a dealer wants the merchandise, has the money and is easy to work with. Being difficult on this end of the market is not in a business owner’s favor.

3. Choose the right product

This is the tough one for any business and can often be challenging. I come from a liquidator business in which we liquidated high-end seconds in carpet. We focused on offering goods with high perceived values such as wool and patterned commercial goods. We trained the customer to desire this merchandise and follow our advertising.

4. Market your products to get loyal followers

My motto is, “If you can’t market it, don’t buy it.” Getting the product out to the customer is the trick. You have to get her interested and excited—not just about your products but also your style.

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