Strategy: The chain hailed by Wall Street as a 'retail treasure' runs the most disastrous store we've ever seen

If Ross Stores is the future of retail, the future looks pretty ugly.

Ross Stores has been deemed a "retail treasure" and a "rarity" by Morgan Stanley analysts for its strong sales and earnings growth at a time of widespread distress in the industry.

The discount chain — which competes with stores like TJ Maxx and Marshalls — has opened more than 500 new stores since 2010. It now has nearly 1,600 US locations and has reported soaring same-store sales as much of the brick-and-mortar retail industry is struggling.

The company's most recent quarter far outshined the rest of the industry, with overall sales gains of 8% to $3.4 billion, and same-store sales gains of 4%, on top of 4% growth last year.

JPMorgan upgraded the company's stock rating to "overweight" Monday.

Much like warehouse chain Costco, Ross eschews the decor and frills of traditional retailers. The bare-bones philosophy allows them to pass savings of up to 60% on to customers.

We went to a Ross store in Richmond, Virginia, a few months ago to see how this "treasure" is luring so many customers when department stores are seeing sales and traffic plunge.

We were surprised to find the store in disarray.

It looked like a tornado had ripped through the shoe department.

Shoes were strewn all over the floor and benches, and there was a bra hanging from one shelf.

The hat display was equally jarring.

The socks clearly needed some attention as well.

And the rugs were a mess.

Everywhere we looked, it was a disaster.

Yet other parts of the store were empty.

It looked as though the store were going out of business. (I checked, and it's not.)

Merchandise was loosely grouped into sections — like toys, shoes, and furniture — but it was hard to see any real organization beyond that.

In every department, there were empty shelves and items on the floor.

Apparently, the tornado that hit the shoe department made its way over to the lingerie department as well.

Bras covered the floor.

The kids' section was a sad jumble of random toys.

And like the rest of the store, a quarter of the merchandise was left on the floor.

Throughout the store, we found several abandoned carts.

Most of the lone carts were empty.

We spotted only two employees in the store who weren't working at the registers.

They were both restocking the apparel department.

Customers didn't seem to mind the mess. There was a steady line of people checking out while we visited and more than 20 shoppers throughout the store.

The messy environment is likely a product of Ross's efforts to keep prices low by investing less in labor and infrastructure — like construction and display costs — than full-priced department stores.

Those cost savings are passed on to consumers, who, based on Ross' earnings, are willing to deal with a mess for the sake of discounts.

Ross' success is a bright spot in an otherwise gloomy retail industry.

It has nearly 1,600 stores throughout the US and plans to open 80 to 90 stores each year over the next several years.

Meanwhile, department stores like Macy's, JCPenney, Sears, and Kmart are closing hundreds of stores.

While analysts are saying the department store closures are necessary, they say Ross has plenty of room to grow its physical presence.

"Accelerating department store closures and weak fundamentals in remaining stores presents opportunity for Ross to continue to gain market share," Morgan Stanley analysts wrote in a note earlier this year.

Unlike most other stores, Ross is "immune" to the growth of e-commerce because of the treasure-hunt experience and low prices it provides customers in stores, the analysts said.

"Although there is some background noise in the industry, which talks down the importance of physical shops, we believe that these remain a vital route to growth for off-price players and see no reason why Ross should slow the pace of development," Neil Saunders, the managing director of GlobalData Retail, wrote in May.

So, American consumers, prepare to see a lot more stores like this.

If Ross Stores is the future of retail, the future looks pretty ugly. Read Full Story