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June 6, 2025
What Are the Indirect Tariff Impacts on Off-Pricers?
Ross Stores’ move to withdraw guidance for the year has again raised doubts that off-pricers won’t be as spared from the tariff blows as initially hoped.
“Heightened macroeconomic and geopolitical uncertainty persists, most notably prolonged inflation and evolving trade policies,” said CEO Jim Conroy in a press release discussing Ross’ first-quarter earnings and second-quarter guidance. “While we directly import only a small portion of our merchandise, more than half of the goods we sell originate from China. As such, we expect pressure on our profitability if tariffs remain at elevated levels. Given the varying nature of tariff announcements, we are only providing an outlook for the second quarter at this time and are withdrawing our previously provided annual sales and earnings guidance.”
Ross provided guidance for the second quarter that was below analyst targets and included a tariff cost impact in the range of 11 to 16 cents a share.
On the company’s analyst call, Conroy said that the off-price sector has “historically benefited from significant disruptions to the supply chain with more opportunistic buys available to us, and we believe it will be no different this time.”
He also noted that Ross has a number of levers to minimize tariffs, including negotiating better prices with vendors, strategically raising prices, leveraging packaway stock, and taking advantage of closeouts. Conroy noted that “a lot of goods were sort of frozen in time in China” when the tariff rates were at 145%, and the recently lowered rates opened up inventory flow to create opportunistic buys.
However, Conroy added that it’s “possible that we will see short-term pressure on our profitability.”
Both TJX Cos. and Burlington Stores maintained their guidance for the year, with both management teams indicating their flexible and opportunistic buying approach, price adjustments, and diversified sourcing are offsetting tariff impacts.
Ernie Herrman, TJX’s CEO, said on his company’s second-quarter analyst call that while vendors may cut back or delay purchases amid tariff-related uncertainty to create less inventory availability in certain categories, TJX would focus on other categories offering deals. Herrman said, “I always emphasize this: our only contract to the customer is that we will have great value on the goods that we put out there, and it will be below the out-the-door price of traditional retailers, specialty retailers, etc.”
He also said “uneasiness” within the vendor community had already supported “great” deals in the current quarter, and he expects that to continue.
Michael O’Sullivan, CEO at Burlington Stores, told analysts that a broader pullback in consumer spending and inflationary pressures could hinder sales growth. He also agreed that the “stop-start surge volatility” of tariff changes will likely lead to shortages in some categories while creating excess supply in others. However, he sees tariffs as a “short-term disruption” as vendors adjust their sourcing. O’Sullivan said, “The next six to 12 months could be challenging, but when we get to the other side, if we navigate this well, we should be in good shape. In fact, we expect to come out ahead.”
Discussion Questions
Are you any more or less confident that off-price retailers are well-positioned to ride out the near-term and long-term fallout from tariff disruption?
Do you see the tariffs indirectly putting pressure on inventory availability, price competitiveness, or any other areas for off-pricers?
Poll
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Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Pamela Kaplan
Principal, PK Consulting
Shannon Wu-Lebron
VP of Industry Strategy & Growth, Neudesic
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Off-price is better positioned to deal with tariffs, but the sector is not immune to them. Don’t forget that most off-price retailers have a proportion of product that is made for them and which is imported. A retailer like Ross also has a heavy exposure to lower income consumers who, if spooked by general price rises, will likely cut volumes of discretionary products. TJX is better positioned in this regard as it has a more affluent customer base and is also better at pulling in consumers who wish to ‘trade down’ from other channels.
The bottom line is that no one knows, it’s the instability of the future of tariffs and the affect on the economy that is the problem. Tariffs affect the top line by both adding cost and in the customer’s confidence to spend. Off-price sellers are in the best position with offering value to the customer, but the customer just may not want to spend.
Clearly more Democrat fake news! Right?…uhm, no. That having been said, my interpretation of this is it’s more about uncertainty than negativity. Not quite the same thing, but hardly good news, as the inference is any retailer – or any company, retail or not – might start to feel simlilar doubts…even if they aren’t directly impacted.
Off-prices are best positioned to weather these tumultuous times, but even they are concerned. Tariffs will impact off-prices, but they have flexibility in what they carry and sources — more than virtually any other category. Flexibility is a super power and off-prices have this edge.
Remember that tariffs don’t just affect merchandise. They also affect fixtures and technology. Ross and other discounters are better positioned than other retailers, but they aren’t completely off the hook. This insane experiment hurts all of us.
Yes, they affect everything. And the American-made alternatives will raise their prices to meet the umbrella caused by the pricing of foreign goods.
While off-price players are better positioned to weather the tariff storm, the real story is about capitalizing on the most significant inventory disruption opportunity in decades. Ross Stores’ withdrawal of guidance signals uncertainty; however, it also reveals management’s failure to recognize and effectively communicate its strongest competitive advantage. Off-price retailers are inventory arbitrageurs with built-in economic moats during periods of disruptions. Strategically, this transcends cost absorption and margin pressure narratives. Traditional retailers locked into rigid purchasing agreements will desperately need inventory outlets as consumer demand shifts and tariff uncertainty persists. Traditional Wall Street valuation metrics are ill-suited for these distressed asset aggregators. For TJX, Ross, Burlington, and others, this is a time to embrace aggressive expansion and turn supply chain chaos to their advantage so they emerge with a permanent competitive advantage and an enviable market position.
I have a saying: TJX always wins. In a down economy, people trade down looking for treasures at the various TJX banners. In an upward economy, people will trade up to look for treasures at the various banners.
Depending on how long this debacle lasts, TJX will either be able to feast on the excess inventories brought in before “Liberation Day” or it’ll grab customers and inventories from the now fading Saks’ and Neimans’ of the world,
They just always win.
Tariffs (assuming they stay in place) will make stores like Ross that much more attractive to price sensitive shoppers. Most likely the mere threat of tariffs are enough to drive new shoppers to Ross.
This halo effect will stay in place for a while regardless of how long tariffs stay in place, and I am going to attempt to remember this post to see if I am correct!
Given the broader impact of tariffs on so many goods and services, consumers will is likely to reduce spending on what they consider discretionary. This could be good news to off-pricers.
On the other hand, tariffs will definitely cause challenges in inventory availability, pricing and assortments.
Those off-price companies that have flexibility, vendor negotiation powers and sound finance planning would come out ahead.
No business in the U.S. will be able to ride this out. If it isn’t tariffs, it is the coming inflation caused by the BBB (even with Senate adjustments). Sadly for the U.S., the world is making adjustments. In the end, we will continue to bleed with the continued shot in the foot.
Because tariffs affect such a wide range of goods and services, consumers are going to, out of necessity, cut back on discretionary spending. Further, tariffs will also create definite challenges with inventory availability, pricing, and product selection for all retailers, off-price included. So this is a situation that impacts everyone.
There will be impact, directly they’re going to pay more for at least some of the items on their floors, they do import goods. Indirectly they’re going to be susceptible to any downturns in consumer spending. Apparel is a discretionary category and if their customers are get are hurting, they’re going to hurt.
While tariffs will affect off-pricers, these retailers have enviable advantages. Agile procurement, a flexible model and seller overstocks give off-pricers an edge. Consumers seek deals and are more open to switching brands as loyalty declines. Risks include lower consumer spending and affordable substitutes like thrift stores.