Discount retailers benefit from recessionary shoppers

Nordstrom jwn is snatching customers from Neiman Marcus and Saks Fifth Avenue saks. T.J. Maxx and Marshalls tjx are stealing market share from most every store at the mall. And Macy's m benefits as much as it gets hurt when shoppers head to off-price discount stores — a growing retail trend called trading down.

Earnings this week from these stores show how the recessionary shopper's behavior is affecting bottom lines. And a new analysis of off-price retailers shows they're doing better as the economy worsens.

"Where it used to be a polite war, it's now a 21st-century bar fight, where everybody is competing with everyone else for the customers' money," says author Paco Underhill, who is also CEO of the retail research and consulting firm Envirosell.

• T.J. Maxx and Marshalls parent TJX said Wednesday that its fiscal fourth-quarter profit fell 17% partly because of the stronger dollar, but adjusted results still managed to top analysts' estimates. Excluding a reduction of the reserve related to a security breach, adjusted earnings from continuing operations were 55 cents a share, which was above the retailer's forecast for 50 cents to 51 cents a share.

A report out Tuesday by specialty retail analyst Brian Tunick of JPMorgan found the off-price sector up 27%, from $22 billion in 2003 to $29 billion last year, mostly because of store openings.

Stores such as T.J. Maxx are becoming outlets for clothing designers who are sometimes shut out at full-price retailers. That "plays up the consumer perception" that off-price stores are a place they can get high-quality merchandise, often at "30% to 40% below department store prices," Tunick says.

•Saks reported a loss for the fourth quarter as the luxury retailer was forced to slash prices to pull in affluent shoppers who have sharply pulled back on their spending in the recession. The company also issued a downbeat sales forecast. The retailer, which operates Saks Fifth Avenue, said it lost $98.75 million, or 72 cents a share in the quarter ended Jan. 31. That compares with a profit of $39.47 million, or 26 cents a share, a year ago.

Sales dropped almost 15% to $835.5 million. Same-store sales, or sales at stores open at least a year, fell 15.3% in the quarter compared with a 9% gain in the year-ago period. Same-store sales are considered a key indicator of a retailer's health.

•Macy's announced Tuesday that its earnings were down 59%, and its same-store sales were down 7.7% for the fourth quarter of fiscal 2008, compared with a year earlier.

While Macy's benefits from the flight from luxury, Tunick says the chain is among those losing out to discounters. "You can clearly argue that the midtier department stores have no pricing integrity," he says. "Nothing goes out the door at full price, and that plays right into what the off-pricers do."

•Target's quarterly profit was down 41%, while same-store sales were down by 5.6% compared with last year. CEO Gregg Steinhafel said the discounter, which is losing market share to Wal-Mart wmt, will focus on "continuing to grow our market share profitably, offering even more compelling prices on quality products, in combination with a superior shopping experience."

•Nordstrom beat analysts' earnings estimates for its fourth quarter, despite sales that were down 12.5% compared with last year. Retail stock analyst Jennifer Black said Nordstrom's positioning as "affordable luxury" will continue to help it steal market share from luxury competitors. Nordstrom's plans this year to open 10 new Nordstrom Rack stores, which far outperformed the full-price stores, could boost the chain's long-term prospects.