Ross is the Boss

Discount Retail Stores

      Believe it, retail is not out, let's check out discount stores for an opportunity that may unfortunately come true. To understand where this opportunity will come about we will take a look at, the business model, who shops at these stores (Ross & TJ Maxx), how big that consumer basis is, and why they will continue to shop there. 

     You may think that these discount retail stores can sell so cheaply because all of their clothing is from past seasons or full of manufacturer defects. This is surprisingly far from the truth and the majority of their clothing is from the same season and of high quality. A very small percent does however have unnoticeable defects or is out of season. Discount stores actually directly deal with name brands and their manufacturers to acquire in season products that have been over produced. The end state is that these stores get to purchase name brand products at fractions of the suggested retail price and can sell to you much cheaper than department stores. 

     While anyone can shop at a discount retail store the majority of people that do are of middle to lower socio-economic status (SES). These consumers still want fashionable products but at a discounted price and there is no better place to find these items than at discount stores. According to some reports 40% of households are earning 40k or less a year. Coincidentally most of the people that shop at these stores earn around 40k a year. If 40% of families make 40k a year that means there are nearly 48 million households (not individuals) to draw consumers from (if we use 2012 household data). With a growing amount of people identifying as lower and lower middle class there is plenty of room for growth in their already robust consumer base. 

     Consumers will continue to shop at these stores regardless of if the economy improves or not. Those that are already shopping there know that they can get name brand products at massive discounts, why change were you shop based off your income if you can get the same stuff for cheaper? And what happens if the economy tanks, people lose jobs or are being paid less? Well those that already shop there will continue to shop their to save money (maybe not go as often) and you will gain a new customer base from those that have moved down a few income brackets and are now forced to shop at discount retailers. While this is just a prediction I would like to point out that since 2008 (rough start of recession) Ross has increased sales by 72% to almost $11 Billion base off their 2008 and 2014 earnings reports. 

     Bottom line is that discount retailers are here to stay and will continue to grow especially if our lower middle class continues to grow. If you don't already shop at one of these stores I would recommend it especially if you are planning on investing in one. Top guns in this sector are Ross (ROST) and TJ Maxx (TJX).