This story is part of The Chain Game, an editorial series examining all the ways the supply chain has been disrupted over the past two years. You can read the whole package here.
When times are tough for most retailers, off-prices generally thrive. That notion rings especially true now that supply chain disruptions have resulted in many holiday stocks arriving late – goods that are now up for grabs for slashed prices.
Victoria’s Secret said in November that 45% of inventory ordered for the fall was delayed when some of its products were stuck on 100 ships. Gap took a $16 million affected in the fourth quarter, with same-store sales of its Old Navy brand flat compared to 2019 due to continued supply chain disruptions. Nike said in September that it takes 80 days to get goods from Asia to North America – that’s double the time it took before the pandemic.
What could be a problem for some retailers presents an opportunity for off-prices – like TJ Maxx, Ross and Burlington – who are buying up unsold or excess inventory. As retailers continue to grapple with inventory arriving months later than expected, slash prices come at an opportune time to take advantage of product clearance. Experts said low-cost retailers are likely to have more merchandise to choose from as shipping containers continue to arrive late.
“Congestion at ports and delays up the supply chain have led to difficulties getting products to store shelves. We’ve all been through this, and it’s also led to inflationary pressure,” said Matt Katz, managing partner at SSA & Company. “What will happen as a result is that produce may be out of season when it comes through the port. Off-season products are always products that appeal to the discount circuit.
Meanwhile, the off-prices offered a more optimistic view the future growth of the sector by opening new stores, increasing their dividend or doing both. Ross and Burlington expect to open 100 and 120 new stores respectively this fiscal year. Ross also increased its quarterly dividend by 9% and TJX Companies, which owns discounters like TJ Maxx and Marshalls, increased it by 13%.
Experts said companies generally don’t raise dividends unless they’re confident about their medium to long-term growth.
Off-prices have historically thrived during supply chain disruptions due to their flexible sourcing strategy. During the end of the US-China trade war in 2019, several off-price retailers said at the time that they were set to benefit from tariffs and economic disruption. For example, Burlington said in 2019 that the company only imports 6% of its products from outside the United States, so only a small percentage would be impacted by tariffs.
“They just have such a wide range of vendors they can go to,” said Sucharita Kodali, vice president and principal analyst at Forrester. “These low-cost sellers have always had their pick of excess inventory. They just take almost everything there and while there is less that may be available at any given time, there seems to be more that they never know what they could use.
In TJX’s fourth quarter earnings report, the company said it was “well positioned” to push spring merchandise to its stores and online. TJX Companies CEO Ernie Herrman praised the company’s teams for ensuring a steady flow of product this holiday and throughout the year, according to the earnings report.
“That inherent flexibility of being able to vary what you buy based on what’s available is what helps them and these types of disruptions historically,” said David Brown, managing director and Consumer Retail Group leader of Alvarez & Marsal.
Brown said off-prices have the advantage of not being locked into a specific assortment. The grouping of various pallets of goods allows off-pricers to offer a “treasure hunt” experience to their customers. In the apparel category, Brown said off-price is in a better position than competitors due to its value-based offering, especially as consumers plan to stretch their budgets over the coming months. due to rising inflation.
Off-prices, however, are not immune to other pandemic-related issues. TJX said temporary store closures due to Covid-19 may have resulted in up to $1.61 billion in lost sales. Experts said these companies could also feel the pressure of inflation and pass on price increases to consumers. In November, TJ Maxx announced it was raising prices on some high-end merchandise, but didn’t specify which ones.
Moreover, although off-prices are less affected by international shipping constraints, the shortage of truck drivers remains a problem for them at the national level. Last year, the United States was expected to experience a shortage of 80,000 drivers, according to the American Trucking Associations.
SSA & Company’s Katz said the challenge for price cuts now is to give consumers a reason to shop at their stores. After all, access to quality products while staying on a budget is what keeps customers coming back, he said.
“Off-price pricing has never been constrained by product shortages. We are an economy that has an abundance of products available,” he said. “The challenge for off-price is to be able to create an assortment from available inventory and deliver freshness to the consumer.”