Pricing alone does not decide where people buy their clothes.
With a number of retail chains competing for the off-price, on-trend fashion crown, it’s easy for one brand to fall out of favor. Consumers seem to have an enduring love for Marshalls and TJ Maxx, while the popularity of Ross Dress for Less has grown steadily in recent years.
These brands drive sales by foot traffic, and that’s a battle the aforementioned chains have been winning.
“Off-price apparel remained on solid footing in Q2 2026, with Ross leading the segment. Visits to Ross Dress for Less rose 16.4% year over year (YoY), while dd’s DISCOUNTS grew 8.4%. TJX’s TJ Maxx and Marshalls, meanwhile, saw visits hover around last year’s levels — significantly outperforming traditional apparel, which declined 3.5% YoY,” according to data from Placer.ai.
In the battle for customers looking for deals on trendy, fashionable clothes, Cato has been struggling, and now plans to close about 15% of its retail stores.
Cato has lost sales
The Cato Corporation reported net income of $1.1 million in the second quarter, compared to net income of $6.8 million for the second quarter, which ended Aug. 2, 2025.
Sales for the second quarter 2026 were $163.9 million, or a decrease of 6% from sales of $174.7 million for the second quarter ended Aug. 2, 2025, primarily due to a 3.7% same-store sales decrease for the quarter compared to 2025.
The company blamed its customers for the drop.
“Our results in the quarter are in large part due to the continued pressure on our customers’ discretionary income, which is being negatively impacted in part by persistent inflation, higher fuel prices and continued elevated interest rates,” CEO John Cato said in the earnings release.
It’s a situation he does not see improving anytime soon.
“We expect the negative pressure on our customers’ discretionary income to continue for the foreseeable future. We will continue to tightly manage our expenses and inventory as we anticipate the back half of 2026 to be challenging.”
The chain’s rivals, however, tell a different story.
- Ross Dress for Less sales for the second quarter of fiscal 2026 increased 13% versus last year, with comparable store sales up 10%, primarily driven by customer traffic.
- Marshalls and TJ Maxx, which TJX reports on jointly, reported a 1% same-store sales increase and a 3% jump in overall sales.
Cato plans more store closures
Cato has expanded its plan to close down underperforming stores. It’s adding 70 new closures to the list of locations that will close before the end of the company’s fourth quarter, bringing the total planned shutdowns to 120, according to a press release.
The chain, John Cato noted, looks at a third of its retail base every year to decide whether to exercise available lease options or negotiate an extension based on each store’s performance, including store sales trends and current and projected store profitability.
“In years past, marginal stores were renewed for an additional year to give the store more time to improve its sales trend and profitability. In light of the current economic environment, especially with the negative pressure on our customers’ discretionary income, we do not expect these marginal stores to improve appreciably,” he said.
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Ross may have an edge over its rivals
Morningstar analysts believe Ross Dress for Less’ roughly 2,200 stores give it an advantage over smaller competitors such as Cato, which operated more than 800 stores before the planned closures.
“As the second-largest off-price retailer in the U.S. with about 30% market share, we think Ross Stores’ unique inventory procurement method and scale positions the firm to comfortably expand its top line at a mid-single-digit pace while fending off competition from online channels in the future,” the analysts shared in a research note.
Size matters, as does the relationship Ross has built with its suppliers.
“We suggest that Ross’ standing as a reliable sales outlet for product manufacturers and traditional (or full-price) retailers looking to discreetly liquidate excess inventory should provide the firm with a plethora of buying opportunities,” Morningstar added.
Cato is trying to sell affordable, on-trend women’s fashion. Ross and the TJX brands are playing the same value game, but with a much larger buying operation and access to merchandise from manufacturers and full-price retailers looking to clear excess inventory.
“As fashion evolves, one thing remains the same — our commitment to putting women’s confidence first. For 80 years, Cato has helped women look and feel their best with stylish, affordable fashion for every occasion,” the chain shared on its website.
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Off-price has been growing
With many Americans struggling financially, it’s easy to see why off-price name brand clothing would appeal to more people. GlobalData Managing Director Neil Saunders, however, commented on TJX, Ross, and Burlington, which he called the three biggest players in the space, a year ago on his LinkedIn page.
“Since 2019, the three main chains all delivered US sales growth in excess of 30%. By contrast, the total market for the things they sell — mostly fashion and home — grew by just 21.7% over the 2019 to 2024 period. In other words, they’ve all expanded their market share,” he wrote.
He thinks that those three companies have steadily earned consumer trust.
“All of this is a testament to the skill of the off-price teams. Yes, things like value for money and bargain hunting are very much in their favor. But consistently delivering on these consumer requirements is far from easy. The effort, knowledge, and judgment involved are immense,” he added.
The closing Cato stores, the company shared, all have expiring leases, so the cost of rent for those locations will come off the retailer’s books by the end of 2026.
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