UPDATE: Off-price retailers are starting to cannibalize themselves
By Tonya Garcia, MarketWatch
Some department store off-price chains have reported same-store sales declines
Off-price retail, an area of the retail sector that has been a bright spot at a time when many others are facing hurdles, is facing a few challenges of its own, driven in part by its own footprint.
Moody's analysts led by Christina Boni note signs of slowing in the off-price sector, even as they think it will continue to outperform full-line, full-price department stores like Macy's Inc. (M) and J.C. Penney Co. Inc. (JCP), which are looking for ways to drive traffic and sales.
"Over the next 12 to 18 months, we expect off-price to continue to outperform as it sticks with its successful formula, although the rate of growth has shown some deceleration in the face of continued new store development," Moody's wrote in a Tuesday note. "We see operating income growth 6.9% in 2017 and 5.4% in 2018, compared to 9.6% in 2016."
Off-price chains like T.J. Maxx, a TJX Cos. (TJX) banner, and Burlington Stores Inc. (BURL) offer discounted merchandise and a "treasure hunt" experience, both of which appeal to customers. Moreover, these companies are looking for ways to expand their merchandise, with the home category becoming popular. Moody's estimates that the home category grew 9.9% at off-price in 2016 relative to overall growth of 7.8%.
See also: Talks to take Nordstrom private are faltering: sources (http://www.marketwatch.com/story/talks-to-take-nordstrom-private-are-faltering-sources-2017-10-02)
Analysts expect off-price operating income to grow by 5% to 7% over the next five years, outperforming the broader apparel sector by 4%. TJX, Ross Stores Inc. (ROST), Burlington and Nordstrom Rack (JWN), the off-price arm of the luxury department store chain, are the leaders of the sector, according to Moody's.