Ross taps the thrill of the bargain hunt
As shoppers demand discounts, the off-price merchant plans to expand and launch an even-lower-priced chain
In the brutally competitive retail arena, off-price apparel retailers enjoy a variety of advantages. They usually locate away from malls, where rents are cheaper. In addition, they are less vulnerable to fashion demands, which helps to steady profits, analysts say.
Wal-Mart Stores Inc. and Target Corp. — by offering more well-known brands, which they sell at prices that range from 20% to 60% below a department or specialty store's regular price.
For example, a $43 Callaway golf shirt was $19.99 at Ross recently, and a Perry Ellis pullover sweater with a suggested retail price of $49.50 was marked $13.99. A pair of Levi Strauss Signature jeans, a brand that Levi introduced to Wal-Mart stores for about $23 a pair, were available at Ross for $12.99.
"Big-name brands at rock-, rock-bottom prices is a good formula," said Marshal Cohen, chief industry analyst for NPD Group, a market information company. "We're watching this evolution continue as the consumer continues to gravitate toward better fashion at lower prices."
To keep prices low, off-price retailers must make smart buys.
Ross says it has more than 200 buyers in the garment districts of Los Angeles and New York negotiating deals with about 4,000 vendors. In some cases, Ross buys goods after another retailer has canceled or cut back on an order.
Other times, Ross may snap up fall apparel after the season ends and then keep it in storage until the next fall approaches. As of the end of October, 38 percent of its total inventory was such "packaway" goods, finance chief Call said.
A learning curve
Ross, in some ways, is still in its adolescence.
It started in 1982, when a group of investors bought six small neighborhood department stores in the Bay Area and stocked them with merchandise marked well below regular retail prices. Hoping to become established along the West Coast in advance of an onslaught of TJ Maxx and Marshalls stores, Ross opened 140 stores in the first four years.
In 1985, the company went public. By 1992, revenue sailed past $1 billion.
But the process hasn't been painless.
In 1986, when an oil-related economic slump hit Texas and Oklahoma, Ross closed 25 underperforming stores there. It also struggled in the early 1990s as it tried to use buying strategies more suited to department stores, a plan that flopped.
Since then, the company has become much savvier about dealing with vendors, and upgraded its information technology systems, said Donald Trott, an analyst with Jefferies & Co.
"It's really a company that's gotten its act together in the last four years or so, and we think it's gaining increasing investor recognition," he said.
Today, Ross employs about 20,000 people in Maryland and 24 other states. Call predicts sales will be close to $4 billion this year. The company's shares have gained 24 percent so far this year.
The off-price sector of retail has its share of risks. Department stores have been slashing prices on brand-name merchandise so drastically in recent years that they've begun narrowing the gap between the various segments. And warehouse club stores, such as Costco Wholesale Corp., are gaining market share, partly by selling heavily marked-down items such as designer jeans, said Cohen, the NPD Group analyst.
Costco shoppers "can't even try them on anywhere, but they still buy them," he said. "And if it doesn't fit, they'll give them to a friend."