New York CNN Business —
It’s a great time to be a closeout store like TJ Maxx.
Traditional brands and retailers are overstocked on clothing, home goods, electronics and other merchandise. In July, they were sitting on $713 billion in inventory, according to the latest data from the Census Bureau.
That’s a prime opportunity for “off-price” retailers such as TJX (TJX) – the parent of TJ Maxx, Marshalls and HomeGoods – as well as Ross (ROST), Burlington (BURL) and Ollie’s Bargain Outlet (OLLI).
These chains have flexible buying models and are able to scoop up unwanted merchandise from suppliers at steep discounts to their initial wholesale price.
Unlike brands and stores that lock in their inventory six months to a year in advance, TJX and other off-price chains buy surplus merchandise to sell it right away. They also capitalize on orders that have been canceled or when companies manufacture too many items.
And if a designer changes the style or color of a dress, for example, off-price stores are happy to take it and sell it on the cheap.
If the price is right, these companies will also buy some merchandise and store it away for future seasons – a practice known as packaway.
By buying goods cheap and controlling costs with limited advertising budgets, off-price stores can sell designer names and mid-range brands anywhere from 20% to 60% below regular retailers’ prices.
Companies and analysts say the current inventory pileup across retail is the ideal environment for off-price chains.
The inventories of Nike (NKE), Gap (GPS), Kohl’s (KSS), Target (TGT) and other companies have ballooned from a year ago. “We effectively have a few seasons landing in the marketplace at the same time,” Nike (NKE) CEO John Donahoe said on a call with analysts last month.
Factory closures last year and in 2020 delayed shipments, as did widespread container ship shortages and supply chain backlogs. Inflation also has pinched shoppers’ pockets, leading them to pass on discretionary items.
Companies now are aggressively marking down their excess goods to stimulate customer demand. They’re also packing away some goods to try to sell them in future seasons, diverting more merchandise to their own outlet stores and canceling orders from suppliers.
But those strategies won’t be enough to clear out the glut. And the beneficiaries of this deluge will be off-price chains.
“This will all waterflow over into them,” said Brett Rose, the CEO of wholesale distributor United National Consumer Suppliers, which works with stores and brands. Rose’s company is shipping 40% more volume to off-price chains from the same time a year ago.
“We are seeing extraordinary off-price buying opportunities in the marketplace,” TJX CEO Ernie Herrman said in August.
Ollie’s Bargain Outlet, a closeout chain with more than 400 stores offering housewares, flooring and outdoor goods, is finding “opportunities like we have not seen for a long time,” CEO John Swygert said last month.
“Canceled orders, excess inventory and supply chain disruptions have led to a broad assortment of products being available,” he said.
As an expert in retail and supply chain dynamics, I've closely followed the recent trends and market conditions affecting off-price retailers like TJ Maxx, Ross, Burlington, and Ollie's Bargain Outlet. The information provided in the article aligns with my in-depth knowledge of the retail industry, inventory management, and off-price business models.
The article highlights a unique opportunity for off-price retailers in the current market environment, where traditional brands and retailers are grappling with a significant overstock of merchandise, amounting to a staggering $713 billion in inventory, as reported by the Census Bureau. This surplus creates a prime scenario for off-price chains to thrive, given their flexible buying models and ability to acquire excess or unwanted goods at substantial discounts to the original wholesale prices.
Unlike traditional retailers that plan their inventory well in advance, off-price chains such as TJX, Ross, Burlington, and Ollie's have the advantage of buying surplus merchandise and selling it immediately. They also capitalize on canceled orders, overproduction by manufacturers, and changes in design or style by designers. Additionally, these off-price retailers engage in the practice of "packaway," wherein they purchase goods at a low cost and store them for future seasons.
The article emphasizes that off-price stores can offer designer names and mid-range brands at discounts ranging from 20% to 60% below regular retail prices. This is made possible by their ability to control costs with limited advertising budgets and acquire merchandise at favorable terms due to the current inventory surplus in the retail market.
The challenges faced by traditional retailers, including Nike, Gap, Kohl's, and Target, are outlined in the article. Factors such as factory closures, delayed shipments, container shortages, supply chain backlogs, and inflation have contributed to a ballooning inventory. To cope with this situation, companies are aggressively marking down excess goods, diverting merchandise to outlet stores, and canceling orders from suppliers. However, these strategies may not be sufficient to address the excess inventory.
The insights from industry experts and CEOs, such as TJX CEO Ernie Herrman and Ollie's Bargain Outlet CEO John Swygert, further support the idea that off-price retailers are experiencing exceptional buying opportunities in the current market conditions. The CEO of wholesale distributor United National Consumer Suppliers, Brett Rose, notes a substantial increase in shipping volume to off-price chains compared to the previous year, indicating the heightened demand for surplus merchandise.
In conclusion, the evidence presented in the article aligns with my comprehensive understanding of retail dynamics, supply chain disruptions, and the strategic advantages that off-price retailers currently enjoy in the marketplace. The surge in inventory levels among traditional retailers presents a lucrative opportunity for off-price chains to thrive and capitalize on discounted merchandise, ultimately benefiting consumers seeking quality products at lower prices.
