Kohl's jumps on off-price bandwagon

Competition is heating up in the off-price retail space.

Kohl's is the latest retailer to say it will join the department store outlet fray, following the likes of Nordstrom Rack, Saks Off Fifth and Neiman Marcus Last Call.

The news, first reported by Fortune, comes just weeks after Macy's detailed plans for its bargain "Backstage" stores, which will open in the New York area this fall. ( Tweet this. )

A Kohl's store in Colma, California.
David Paul Morris | Bloomberg | Getty Images
A Kohl's store in Colma, California.

Off-Aisle by Kohl's, however, will differ from its competitors' in that it will initially consist of like-new items that have been returned to the retailer's stores or through its website. Kohl's spokeswoman Jen Johnson said that other merchandise will eventually be added to the assortment, where items will sell for discounts as deep as 90 percent off.

Read MoreNordstrom's fastest-growing division stalls

"Off-Aisle by Kohl's is a single store that will enable Kohl's to test new ways to provide our customers with the opportunity to purchase merchandise at a highly discounted price," Johnson said.

The store, which opens in early June, will be located in Cherry Hill, New Jersey.

With sales growth that's outpacing the overall apparel market, retailers have been honing in on the off-price category to attract discount-savvy shoppers.

Though its lower-priced division posted a rare misstep in the first quarter, same-store sales gains at Nordstrom's Rack had previously outpaced those at its traditional department stores for 2 1/2 years. And on Tuesday, TJ Maxx and Marshalls parent firm TJX posted its 25th-straight quarter of comparable sales growth.

Read MoreMacy's joins bargain game in new bid for growth

Despite these outsize gains, the off-price environment is also getting more competitive. In a call with investors earlier this week, TJX CEO Carol Meyrowitz said the company sees opportunity to expand its store count to 5,475, up from more than 3,400 locations today. Similarly, Nordstrom has said it will nearly double its Rack footprint to 300 stores by 2020.

Last week, Kohl's reported earnings of 63 cents a share on revenues of $4.12 billion.