The last quarter of 2024 was disruptive for many industries in the United States, with the new Presidential Administration incoming promising fast and sweeping changes impacting all sectors of the economy. For retailers, this presented both a challenge and an opportunity. As consumer behavior shifts, discount retailers that purchase excess inventory may see more upside than most. Reasons for optimism include:

  • A continuation of the “trade down phenomenon” into 2025 as US consumers respond to tariffs and uncertain economic conditions
  • A larger focus on consumable products, which are less impacted by economic pressure
  • Several businesses proving that, if you can source and price inventory correctly, sales are on the rise
  • An opening in the market for new retailers taking advantage of available space and inventory
  • Leadership changes with renewed commitments to serving core customers and offering deep discounts to strapped customers

While much of the focus now is on what will happen in 2025, let’s take a look back to see how the end of 2024 can prepare us for what’s next.

Industry Disruption

While the new Presidential Administration had not yet entered office, retailers were already preparing in Q424 for what were promised to be swift and sweeping changes to our economy. Consumer uncertainty was already on the rise, causing discount retailers to see a continuation of the “trade down phenomenon” with shoppers more willing to swap expensive goods for lower-tier products. 

End-of-the-year results were strong, with retailers including Ollie’s, Grocery Outlet, and Ross reporting sales rises in line with expectations. 

At the same time, leadership at many discount retailers voiced concerns about slower sales at the start of 2025, along with the impact of tariffs. Ollie’s CEO Erik van der Valk expressed that while 50% of Ollie’s direct import business comes out of China, they stand to be hurt in the short term by tariffs. However, he was also confident that tariff-driven disruptions would benefit them on the whole due to Ollie’s ability to offer deep discounts to customers via a higher availability of excess inventory in the marketplace. 

Focus on Consumables

Already last year, consumers showed a shift in focus away from discretionary big-ticket items to more accessible categories like food, beauty, and household goods. Ollie’s reported its strongest categories were household, food and candy, while Ross said that non-apparel departments were strong, with children’s and cosmetics as standout categories.

As consumable goods are more often manufactured domestically, discount retailers expect this trend to continue. As these products drive foot traffic and offer an affordable splurge for consumers feeling the strain of high prices, this focus represents a major opportunity for discount retailers to capitalize on sales.

Shining Stars

Several discount retailers, including Burlington and Ollie’s, reported strong sales in Q424. 

Ollie’s reported that comparable store sales grew 2.8%, meeting expectations. This was driven equally by increases in transactions and basket size. Gross margin improved by 20 basis points to 40.7%, primarily due to lower supply chain costs and offset by slightly lower merchandise margins driven by a consumables-heavy mix. They reported the continuation of a trend of retaining higher income customers (40-65k) and growth amongst younger customer demographics, and ended the year with 559 stores across 31 states, a 9% increase year-over-year. 

Burlington outperformed expectations with 6% comparable store sales growth in Q4 and an 11% increase in total 24 sales versus 23. Their operating margin also improved by 100 basis points year-over-year. Burlington aggressively expanded its footprint, opening 101 net new stores to end the year with 1,108 locations nationwide, and plans to open about 100 more in 2025. Despite a cautious outlook for 2025 due to economic uncertainty, management emphasized that disruption tends to favor the off-price model, creating strong buying opportunities. The company’s strategy to elevate its assortment with more household name brands appears to be resonating, particularly as middle- and higher-income shoppers trade down. While apparel remains their core focus, they saw strong performance in consumables categories like beauty in Q4, in line with the rest of the industry. 

Both these examples prove that, when well-executed, there is massive opportunity in the market right now. Retailers who can capitalize with the right sourcing and pricing can stand out as a shining part of the discount ecosystem during these trying times.

Bankruptcies Creating New Opportunities

With recent bankruptcies in the market, including Big Lots and Bargain Hunt, there is a vacuum in the discount retailer space for new retailers looking for both space and inventory.

While Big Lots is making a resurgence and is set to open 200 stores in Q125, that is a fraction of their former 1,400 stores nationwide. Bargain Hunt also recently announced they will be closing all of their stores, leaving leases available for others to step in. 

Beyond retail space, there is also a decrease in demand for available excess inventory in the wake of these closings. With all winds pointing in favor of discount retailers in 2025, we expect to see new retailers launching and growing and conventional retailers dipping their toes into opportunistic purchasing to take advantage of gaps on the demand side. 

Leadership Changeups

Last year, Ollies, Ross, and Grocery Outlet all announced new leadership. While some of these changes were planned, and others addressed business needs, each of them brings a renewed commitment to providing value and improving their customer experience. 

Grocery Outlet, in particular, is facing its challenges head-on, reporting a focus on coming back to core values and getting their systems on track. Initiatives like private label and rapid unit growth were transitioned to the back burner, and new store openings have been de-emphasized in favor of a laser focus on opportunistic purchasing and offering customer value on shelf. 

Ross’s new CEO, Jim Conroy, is new to the discount sector, providing an opportunity for fresh ideas and an outsider’s perspective. Ollie’s new CEO was formerly their President and no stranger to discount retail, making for an easy transition that should allow them to continue their steady growth and success.

There’s no doubt that big changes are on the horizon for 2025. At the same time, there are many reasons to be positive about the outlook for discount retailers, as they are presented with an opportunity to be even more vital to consumers looking to weather economic uncertainty. 

Are you interested in learning more about these trends and how you can capitalize on them with your business? Get in touch with our team today.