Ross wants you to dress (and lots more) for less. A leading off-price apparel retailer (behind TJX Cos. and Kohl's), Ross operates more than 1,270 Ross Dress for Less and 170-plus dd's DISCOUNTS stores that sell closeout merchandise, including men's, women's, and children's clothing, at prices well below those of department and specialty stores. While apparel accounts for more than half of sales, it also sells small furnishings, toys and games, luggage, and jewelry. Featuring the Ross "Dress for Less" trademark, the chain targets 18- to 54-year-old white-collar shoppers from primarily middle-income households. Ross and dd's stores are located in strip malls in nearly 35 states, mostly in the western US, and Guam.
Ross Stores operates two brands of off-price retail apparel and home fashion stores: Ross Dress for Less and dd's DISCOUNTS. Ross is the largest off-price apparel and home fashion chain, offering first-quality, in-season, name-brand, and designer apparel, as well as accessories, footwear, and home decor at between 20%-60% off department and specialty store regular prices.
Launched in 2004, dd's DISCOUNTS serves one of the fastest-growing demographic markets in the US. The ultra-low-price spinoff, which offers brand-name apparel at a 20%-70% discount, has grown to more than 170 locations in about 15 states, including big ones such as California, Florida, and Texas. The stores, which average 28,600 square feet, are located in strip shopping centers in urban and suburban neighborhoods.
The retailer operates six distribution processing facilities: three in California, two in South Carolina, and one in Pennsylvania. These distribution centers are the sole source of its stores merchandise. Additionally, the discounter owns four and leases three other warehouse facilities for packaway storage. To distribute merchandise to stores on a regular basis, Ross Stores enlists the help of third-party cross docks. Shipments are made by contract carriers to stores between three and six times per week depending on the location.
The California-based retailer had nearly 1,450 Ross and dd DISCOUNTS stores across 34 states, the District of Columbia, and Guam (as of mid-2016), with more than 50% of the stores being located in the states of California, Texas, and Florida. The company's distribution centers and warehouses are in Pennsylvania, South Carolina, and California.
Sales and Marketing
Ross Stores relies primarily on television as a medium to share the Ross Dress for Less value proposition with its current and potential customers. The company believes that television advertising is the most efficient and cost-effective medium while it continues to use additional channels to build brand awareness. However, advertising for its dd's DISCOUNTS stores is focused on new store grand openings and local grass roots initiatives.
The retailer has been increasing its advertising spend in recent years. It spent $77.1 million in fiscal 2016 (ended January 30, 2016), up from $72.1 million and $70.2 million in fiscal years 2015 and 2014, respectively.
Ross Stores' annual sales have risen more than 40% since 2011 thanks to rapid store expansion and steady same-store sale growth of between 3% and 6% per year. Its annual profits have risen 55% over the period as it's managed to slow its overhead cost growth.
The fast-growing chain's sales jumped 8% to $11.9 billion during fiscal 2016 (ended January 30, 2016) mostly thanks to added sales from 84 new store openings and a 4% uptick in comparable store sales.
Strong revenue growth in FY2016 drove Ross' net income up 10% to $1.02 billion. The retailer's operating cash levels dipped 3% to $1.33 billion for the year despite the earnings growth, mainly due to changes in packaway inventory levels and the timing of packaway receipts versus the receipts in the prior year.
Ross Stores continues its aggressive retail expansion strategy, opening additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. The company expects there's room in the US to support at least 2,000 Ross locations and 500 dd's DISCOUNTS locations (up from around 1,270 Ross Stores and 170-plus dd's DISCOUNTS stores that were in the US at the end of FY2016.
Indeed, the chain has expanded its store count by nearly 30% to 1,446 at the end of 2015 from 1,125 at the end of 2011. During 2015 alone, the retailer added 84 net new stores (including 64 Ross stores) in established regions and in the less-tapped Midwest markets (including its first store in Wisconsin), where it set up business in 2011. For 2016, Ross Stores planned to open 70 new Ross stores and 20 dd DISCOUNTS stores.
Other objectives the discount chain emphasized in 2016 included: maintaining a sufficient library of well-known brands, labels, and fashions sold with strong discounts; meeting customer needs on a local basis; delivering an "off-price customer" suited shopping experience; and managing effective and competitive store growth in all of its markets.
To boost its relationships with suppliers, Ross does not require them to provide markdown/promotional allowances or return privileges. This, combined with opportunistic purchases (closeouts such as manufacturer overruns and canceled orders), allows the company to obtain large discounts on merchandise. As a result, Ross Stores' customers typically pay 20% to 60% less than department and specialty store prices. Ross holds down costs by offering minimal service and few frills inside its stores.