Off-price retailers will be among the top US retail sector performers over the next 12-18 months, while department stores will struggle as they compete with both off-price and online vendors, Moody's Investors Service says in a new report. Moody's expects operating income in the US off-price sector to grow 6.9 per cent in 2017 and 5.4 per cent in 2018.

Department stores, which are still struggling with outmoded formats and supply chains that can't keep pace with customer demand, will see operating income decline 9.3 per cent this year and 2.7 per cent in 2018, a Moody's press release quoted analyst Christina Boni as saying.

"Off-price retailers continue to outperform other sectors of the US retail industry largely because they offer the kind of lower-cost, higher-value products and shopping experience many consumers are looking for," she says.
Department stores are however mostly taking the right steps to resurrect their businesses, though it's too early yet to know how well they'll succeed. Despite their lack of e-commerce penetration, off-price retailers have succeeded where department stores have foundered due to their focus on delivering major label brands at significant discounts to value-hungry consumers, Moody's says.

While apparel sales still make up the bulk of their sales, off-price retailers have been increasing their product mix in the higher-growth and less competitive home products category.