Younger spenders favor off-price retailers, BofA sees share gains continuing

Younger consumers are increasingly shopping off-price, especially when compared to older age groups, which analysts at Bank of America view as a positive leading indicator for future sales. The firm notes that the share of spending on value apparel has increased nearly four percentage points for the Millennials and Gen Z cohorts in the last year. BofA remains Buy-rated on Burlington Stores (BURL), Ross Stores (ROST), and TJX Companies (TJX) as it thinks these share shifts indicate a long runway for market share gains.

OFF-PRICE SHOPPING: Spending on value apparel is higher for Millennials and Gen Z compared to older age groups, which BofA views as a positive leading indicator for future sales. The share of spending on value apparel has increased nearly four percentage points for these two cohorts in the last year. Attracting a young customer early in their earning years is important, the firm argues, adding that showing them exciting brands at a great value goes a long way towards maintaining loyalty even as their earnings rise. BofA remains Buy-rated on Burlington, Ross Stores, and TJX as it thinks these share shifts indicate a long runway for market share gains.

According to the Bank of America Institute, spending on value apparel increased 13% in July relative to July 2019, compared to an overall apparel spending increase of less than 5%. Apparel pricing is only up 5% vs 2019, so the +13% indicates that consumers are purposefully choosing to transact more and buy more units rather than the growth being driven by higher price points.

Discount retail spending has grown faster than overall retail spending since mid-2022, BofA says. This is due to the onset of inflation, which prompted consumers to trade down to value-based retailers, a trend which has continued to date.

NOW THEY NEED TO RETAIN THEM: The firm notes that off-price has attracted the customer, helped by the quest for value amidst persistent multi-year inflation pressures. Now the challenge becomes enticing the customer to keep coming back, even as their income grows and inflation on other parts of their budge wanes, BofA argues. The solution is to offer better and better brands at great value. This can sometimes pressure margin in the near term but should have an outsized positive long-term effect on sales and overall profitability, it adds.

PRICE ACTION: In morning trading, shares of TJX, Burlington and Ross are fractionally up at $117.92, $270.87 and $150.97, respectively.