Macy's, Nordstrom, and Kohl's are entering an economic 'black hole' of their own creation

Retailers like Nordstrom, Macy’s, Kohl’s, and J. Crew are opening lower-priced outlets to drive sales.

As consumers spend less on apparel and more on technology, healthcare, and travel, discounts are necessary to draw in new customers.

But retail expert Robin Lewis believes this strategy is flawed and will hurt the companies long-term.

“Over time as their discount stores outnumber their full-price stores (which is already the case for some retailers); consumers will perceive the flagship brand and the discount store brand to be one and the same,” Lewis writes on his blog, The Robin Report. “Sadly, they will happily continue to shop in the brand’s discount store where they can get it cheaper.”

The resulting “race to the bottom” will send retailers into an “economic black hole,” where they have completely devalued their own brands and trained customers to never pay full price for anything.

“There is now going to be no end to discounting because all the players must dance as long as the music is playing,” Lewis writes. “And it will ultimately drag everything down with it, including brand image, potentially quality and essentially the value of all things.”

Nordstrom has nearly 200 Nordstrom Rack discount stores and 121 full-priced stores in the US and Canada. Macy’s and Kohl’s recently announced that they would be opening discount stores, as well.

Kohl’s is starting with one store in Cherry Hill, New Jersey that will offer Kohl’s items at discounts of up to 90% off, while Macy’s is planning to open four discount stores called Macy’s Backstage in the New York City area. The stores will sell Macy’s clearance items.

J. Crew has online and standalone outlet stores, and just opened a new discount concept called J. Crew Mercantile.

Retailers argue that the discount stores are an opportunity to attract younger customers who will ultimately graduate to shopping in their full-price stores.

Lewis says that argument is a “charade.”

“The great ‘value strategy’ charade is that retailers actually believe discounting to be a whole new market for them,” he writes. “What they are really succumbing to is a competition for cheap, cheaper and cheapest, when they should be pursuing good, better and best.”

Shoppers started gravitating toward discount stores during the recession, and many have failed to return to shopping in full-price stores.

The off-price apparel and footwear market grew to $US45 billion in revenues in 2014, which is up 40% since 2009, according to RBC Capital Markets.

As the off-price market has grown, department stores have been losing their share of apparel sales, as shown by the chart below.

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