Dive Brief:

• Kohl's has finished testing its off-price concept, Off/Aisle, and plans to close the four existing locations on Aug. 3, a spokesperson confirmed to Retail Dive in an email.
• "We appreciate all we've learned during the Off/Aisle test about inventory management, operational efficiency, store experience and nimble, empowered store leadership," Jen Johnson, Kohl's senior vice president for communications, said in a statement.
• Johnson added, "We also learned that our strength and ongoing improvements in inventory management across the company does not allow us to appropriately stock Off/Aisle stores at scale."

Dive Insight:

It's been four years since Kohl's first said it was testing an off-price banner that would feature highly discounted merchandise that had been returned by customers of its stores and website. The discount department store's announcement came just a couple weeks after Macy's said it was piloting its own off-price concept, Backstage.

Two department store retailers, two similar-sized off-price tests, two very different stories.

Since it entered the off-price space, Macy's has been on a tear. As of May this year, Macy's had 181 Backstage locations (the vast majority inside existing in-line stores). The company opened nine new locations in the first quarter and plans to build 50 in fiscal 2019. In other words, as Kohl's winds down its off-price experiment, Macy's has gone all in.

Off-price, for Macy's, has served a few functions. For one, and most importantly, it is a hedge against the off-price stalwarts like TJX Co and Ross Stores that have enjoyed booming growth in the past decade, much of it at department stores' expense.

Backstage — which, unlike Nordstrom Rack or Off/Aisle, functions mostly as a store-within-a-store complement to Macy's full-line stores — has also helped add sales to Macy's poorer performing locations.

Indeed, it has helped add to Macy's overall top-line growth in a period when other department stores and apparel sellers are getting pummeled. Macy's CEO Jeff Gennette said in a recent analyst call that Backstage has lifted total comparable sales by 5% in the stores where Macy's has added the concept.

Backstage is merchandised separately from the full-line stores and to some degree resembles a T.J. Maxx or Ross Store, with some key differences in merchandising and marketing. Gennette also said that Backstage stores are also uniquely positioned as "the only on-mall off-price option in America."

But Kohl's own off-price concept never grew, never scaled and apparently didn't pose much of an opportunity. That could speak to Kohl's strengths as much as to any problem with the concept. (Although the company did mention the issue of scale, which may have been constrained by relying on the retailer's own returns. That is in contrast to other off-price sellers, including Backstage, that have their own globally focused buying teams to stock their stores.)

Kohl's already frequently sells merchandise at lower prices than other department stores and, unlike Macy's, is not married to the indoor mall. In other words, Kohl's might not need off-price to defend itself against it the way Macy's does.