Earnings   //   June 5, 2024

Off-price retailers are becoming a hit with Gen Z

Discount chains ripe with deals are becoming hot destinations for young shoppers, recent financial results show.

TJ Maxx’s parent company, which posted a 3% year-over-year rise in first-quarter comp store sales, is attracting “more new customers that are skewing to a younger age,” CEO Ernie Herrman said on an earnings call on May 22. Meanwhile, Ross, which found first-quarter sales grew 8% year over year to $4.9 billion, “continue[s] to do well with the younger customer,” COO Michael Hartshorn said on May 23. At Nordstrom Rack, where first-quarter sales jumped 13.8% year over year, digital sales of kids’ apparel “grew notably,” President Pete Nordstrom announced on May 31.

While younger shoppers tend to have less wealth than older consumers, they still hold a large amount of spending power. And, like other generations, younger shoppers are looking to stretch their dollars, especially when it comes to discretionary categories. An ICSC survey last year found that 48% of U.S. Gen Z consumers shopped most frequently at discount and off-price retailers like Marshalls and TJ Maxx. Meanwhile, only half of that, 24%, said they shopped the most at specialty retailers like Sephora or Abercrombie.

Encouraged by the numbers, off-price retailers are testing out new strategies to further woo younger shoppers. One method is opening more retail stores. Although Gen Z is a digitally-savvy generation, about two-thirds (64%) prefer shopping in stores to online, according to a January study conducted by the global strategy consultancy L.E.K. By the end of this year, Ross and Burlington plan to open 90 to 100 new stores, respectively, their executives said on earnings calls last month. TJX — which owns TJ Maxx, Marshalls, HomeGoods, HomeSense and Sierra — hopes to open an additional 1,300 locations “over the long term,” its CEO Herrman said last August.

Off-price and big-box retailers are also leaning into the home goods space as younger shoppers move into their first apartments. Target launched a home collection with Diane von Furstenberg in March that has already sold out. HomeGoods, despite scrapping its online website last October, is becoming a leader in furnishings as Gen Z sets up house, Walter Holbrook, founder of Yoda Retail Consulting and a former svp at the off-price retailer Gabe’s, told Modern Retail. “I think TJX understands that with HomeGoods,” he said. “They see that opportunity, and they’re trying to grab it.”

For the 13 weeks ending May 4, HomeGoods posted a 4% year-over-year rise in comp store sales, the most of any TJX brand. But all of TJX has been attracting a “disproportionate number of new Gen Z and millennial shoppers” for the past several quarters, CEO Herrman said last summer. “[That group] is what we really look at in terms of future growth, because that’s the future higher spend,” he added.

While off-price retailers have managed to curry favor with younger shoppers, department stores that have traditionally attracted middle-aged or older shoppers are struggling to keep sales afloat. JCPenney plans to funnel $1 billion back into the business by fiscal 2025 to redo its website and app, carry out store upgrades and create a new inventory management system. Meanwhile, Macy’s and Nordstrom are reportedly contemplating going private to retool their businesses for the future. Around 40% of Kohl’s and Macy’s shoppers are Baby Boomers, according to research by Numerator.

In this environment, competition among off-price retailers is steep. Yet, the most successful chains offer something beyond low prices, retail analysts say. “It all really comes down to product,” Neil Saunders, managing director at GlobalData Retail, told Modern Retail. “People come for the ‘treasure’ they can find… The buying teams at off-price retailers are among the best in the business. They know their customers intimately and are extremely well-connected in terms of getting the best assortments.”