New York & Co. Doubles Down on Discounts

Last Updated Apr 8, 2010 10:51 AM EDT

Consumers are desperately seeking deals. So it's not surprising that women's apparel retailer New York & Company (NWY) is stepping deeper into discount territory. The hope is that this will help boost its dismal revenues.

But how far down the price ladder can a chain known for low prices go?

New York & Co. tested three outlet stores in 2009, and management liked what it saw. According to the retailer's recently released annual report, the company will open 20 to 25 of these next year, and executives see the potential for a total of 75 to 90 locations. For comparison, the retailer has 576 regular-priced locations; it closed 13 in 2009, and 10 more are on the block this year.

Something is needed. Though New York & Co. returned to profitability in the fourth quarter, same-store sales still fell 7.7 percent during the period, and the fiscal year saw a more dramatic dip of 11.8 percent.

Facing a relentlessly thrifty customer, the outlet strategy makes sense, especially since New York & Co.'s competition, including Ann Taylor LOFT, Old Navy and Kohl's (KSS) have begun to turn the corner. All three recently posted sales gains, and LOFT has a strong outlet presence.

But the biggest challenge New York & Co. faces is itself. Unlike, say, Nordstrom's, which is also jumping into outlet territory, New York & Co. is already known for selling apparel at low price points. (Its home page is offering spring items for up to 70 percent off.) So if consumers are already avoiding a brand perceived as inexpensive, they might not have much motivation to shop at the outlets. In that case, New York & Co. may have nowhere left to go.