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How long can the off-price retail party go on?

How long can the off-price retail party go on?

The discount sector is still hot, but a good economy, the pressure to sell online and the decline of department stores bring new challenges.

Off-price retail is nearly as old as the department store that spawned it — it was Edward Filene, son of the Boston department store magnate, who thought of selling excess inventory at bargain prices in the basement of the downtown store. A little later, Frieda Loehmann collected garment overruns from top labels and sold them at deep discounts from her Brooklyn apartment, establishing the earliest version of the beloved American retail format.

Eventually, most department stores had their “bargain basements,” and factories held their own special sales of defective, over-produced or canceled orders. But other enterprising retailers joined Loehmann over the years in selling such items in addition to seconds, close-outs, returns and last season’s leftovers from other apparel and footwear companies.

For shoppers, it meant an opportunity to grab top labels at basement prices, and that remains an essential lure to the likes of Ross, TJX Cos.’ Marshall’s and TJ Maxx, Nordstrom Rack and Macy’s new Backstage effort, which the company hopes will be its growth concept. (The originators, Filene’s Basement and Loehmann’s, have since folded.)

Thanks in part to solid fundamentals like a robust merchandise pipeline, a healthy consumer base and plenty of runway for brick-and-mortar expansion, the segment is on pace to reach $18 billion to $19 billion of incremental sales by 2021, according to a September note on the sector from JPMorgan analysts. Around the same time, Moody’s Investors Service released a note saying much the same thing, crediting the retailers’ significant scale, flexible purchasing, strong and expanding vendor relations and adaptable real estate strategies, for their endurance.

But does a century-old retail concept, in the age of instantaneous price-checking, the rise of e-commerce and a glut of apparel sellers, really have staying power?

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