Why Red Rack's off-price retail is a timely move for The Warehouse

  • News
  • October 17, 2018
  • Jai Breitnauer
Why Red Rack's off-price retail is a timely move for The Warehouse

In September 2017, JP Morgan analysts noted off-price retailing would reach USD $18 bn to $19 bn of incremental sales by 2021. More recent figures have put that at more like USD $33 bn – so it was a great time for The Warehouse to launch Red Rack, NZ’s first, large-scale, off-price retail offering last week. With up to 60 percent off brands like Billabong, Nike and Paul Frank, The Warehouse are expecting good consumer support across the 47 participating stores nationwide. 

“There have been some small off-price offerings (before) but we’re the only retailer doing it at scale,” says Nick Grayston, chief executive of The Warehouse Group.“We don’t see why New Zealanders should have to pay more than people overseas so we’re using our scale and capability to offer incredible value to Kiwis.”

Off price retailing has been happening overseas for years. In fact, credit for its invention goes to Edward Filene, who suggested selling discounted excess inventory in the basement of his father’s Boston department store a century ago. So why has it only just come to New Zealand, and what does its arrival signify for the retail landscape?

“We’ve offered branded import products for some time but this is a much more considered strategy,” says Grayston. He sights tightening consumer spending and reduced disposable income, due to the fuel market, house prices etc., as making the retail climate ripe to receive such an offering.

“Off-price retail has proved popular overseas, with around two-thirds of shoppers in the US shopping for clothes at off-price retailers, and the off-price market expected to grow. We think Kiwis are really going to embrace the concept.”

The move to allow GST to be applied to all imported goods, announced earlier this year, also means a reduction in overseas bargains ordered online, leaving an opening in the domestic market to help satisfy that Kiwi needs for a deal. 

Research from the NPD group in 2016 showed that 75 percent of apparel purchases in the US came through off price retail channels – second in growth only to online sales. This group were said to be disloyal and impatient, looking for instant bargains rather than waiting for sales, and shopping according to price rather than service standards. While over half of this group were aged 45 +, many fell into the Millennial category, confirming our ideas about this group of young shoppers who want exactly what they want at stunningly good value, and they want it immediately – meaning they prefer to shop in a store and take their purchases away with them. And they shop this way regardless of the size of their wallet.

"Thanks to tax cuts, bonuses and refunds, most consumers saw their finances improve over the first quarter. This includes more constrained households," GlobalData retail managing director Neil Saunders said in an interview with US title Retail Dive in June. "However, this fillip to income did not change the value mindset. Our data shows that even those with rising incomes remain value-conscious and are keen to make their dollars stretch as far as they can."

However, as online and off price retail booms, some commentators have noted that more traditional retail is suffering. Department stores, for example, are on the decline. Writing in Forbes in Nov 2017, Richard Kestenbaum noted that the increase in off price retail outlets (even Macy’s and Saks have an offering) will lead to an increase in competition for product to sell through that channel – giving rise to products made for off-price retail – which reduces the legitimacy of the offering.

“The true closeout product is going to be harder for the store to get in the future because companies are using technology to reduce the quantity of unsold full-price products,” he says, noting that higher spec tech aimed at meeting real time demand and reducing manufacturer losses is challenging the off-price market globally.

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