Introduction
In recent times, the landscape of discount retail has witnessed a significant shift, affecting both consumers and designer brands. The likes of T.J. Maxx, Burlington, and Ross have long been havens for bargain hunters, offering premium apparel and shoe brands' excess inventory at enticing prices. However, the dynamics of the market have evolved, making it increasingly challenging for these discount chains to maintain their prominence. In this article, we delve into the factors driving this transformation and explore how it impacts renowned designer brands and shoppers.
Supply Chain Pressures and the Exodus of Top Brands
Supply chain disruptions have become a defining feature of the contemporary retail industry. The confluence of factors such as global pandemics, shipping delays, and inventory shortages has created a bottleneck, reducing the availability of unsold clothing for discount chains. Renowned brands, including Under Armour, Ralph Lauren, Carter's, Steve Madden, and Levi's, have recently announced their retreat from these discount outlets, commonly referred to as "off-price" stores. This departure is not a recent phenomenon; even before the pandemic, many brands sought to distance themselves from off-price retailers, recognizing that they are the least profitable distribution channels.
Impact on Brand Profitability and Image
One of the key drivers behind brands' reluctance to continue partnering with discount chains is the adverse impact on their profitability and brand image. By offering an extensive range of products at discounted prices, brands risk diluting their image and eroding their pricing power with customers. The preferred channels for these brands now include their standalone stores, e-commerce platforms, premium wholesale partnerships, and factory stores, all of which promise higher profit margins.
A Last Resort for Brands
Susan Anderson, a retail analyst at B. Riley Securities, succinctly summarizes the prevailing sentiment among brands regarding off-price stores: "Off-price is a last resort." This sentiment underscores the reluctance among brands to rely on discount chains as a primary distribution channel. The shift away from discount retailers is underscored by the fact that brands can sell their products at full price due to lean inventories and surging customer demand.
Reduced Sales to Discount Chains
The data speaks for itself. Carter's, a leading children's clothing brand, has significantly reduced its sales to off-price stores. Compared to 2019, Carter's has cut its sales to stores like TJ Maxx, Marshalls, Burlington, and Ross by nearly 50%. Instead, the brand is focusing on its own stores and website to manage excess inventory or strategically holding onto products for sale during different seasons.
Ralph Lauren's Strategic Adjustments
Ralph Lauren, an iconic name in fashion, has taken steps to reduce the volume of inventory sent to discount chains, with a particular emphasis on T.J. Maxx. Notably, Ralph Lauren has also curtailed the production of products designed exclusively for T.J. Maxx, signifying a pivot away from the off-price retail model.
Steve Madden's Priority: Full-Price Channels
Steve Madden, a footwear and accessories brand, is following suit. The company is dialing back on supplying inventory to off-price stores, given the limited supply of goods available. CEO Edward Rosenfeld emphasized their commitment to prioritizing full-price distribution channels during an earnings call.
Discount Chains' Reassurance
T.J. Maxx has sought to reassure its loyal customers, promising that their stores will be frequently updated with new and on-trend items. They also affirm that shoppers can expect a diverse selection of gifts and home decor during the holiday season. In contrast, Burlington declined to comment, and Ross Stores remained unresponsive to requests for statements.
Challenges in the Off-Price Market
Notably, quantities of seasonal goods at off-price chains, particularly Ross and Burlington, appear lower than usual, according to UBS retail analyst Jay Sole. This is especially evident in the availability of top brands' sportswear, which has seen a decrease.
Stock Performance of Discount Chains
The stock performance of discount chains tells an intriguing story. While the S&P 500's retail index increased by 18% in 2021, TJ Maxx's parent company, TJX, experienced minimal growth, Burlington saw a slight 2% increase, and Ross witnessed a 6% decline. This trend reflects the challenges faced by these discount chains in adapting to the evolving retail landscape.
Brands' Outlet Stores
It's not just discount chains that are grappling with challenges. Brands' own outlet stores are experiencing shifts in demand. Outdoor equipment retailer REI, for instance, is witnessing strong demand for outdoor goods, leaving very little leftover inventory to sell at its outlet stores. The majority of their cycling business now comes from full-price sales, emphasizing the shift away from discount models.
Conclusion
In a dynamic retail environment shaped by supply chain pressures and shifting brand strategies, discount chains like T.J. Maxx, Burlington, and Ross are facing unique challenges. The exodus of top brands from these outlets, driven by a desire to protect profitability and brand image, underscores the evolving nature of the retail industry. As these changes continue to unfold, both consumers and brands will need to adapt to a new retail reality that prioritizes full-price sales and strategic distribution channels.
