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November 29, 2024
Are Off-Pricers Bound To Benefit From Tariff Uncertainty?
Top executives at TJX Companies and Burlington Stores both said they expect to benefit from President-elect Donald Trump’s threats to slap tariffs on a wide range of U.S. imports.
TJX’s CEO Ernie Herrman told analysts last week on a quarterly call, “When there’s chaos out there in the market a little, if that happens a little bit on certain categories, ultimately, usually, that’s an opportunity for us.”
Herrman added that similar to past tariff threats or the unforeseen disruption tied to the recent pandemic, the benefits may accrue even if the proposed hikes aren’t fully implemented. He said, “Manufacturers could bring in goods early … That could create actually even additional availability of goods at advantageous prices for us because we can take advantage of that opportunistically.”
Under Trump’s proposals pushed forward on the campaign trail, a universal 10%-20% tariff could be imposed on imports from all foreign countries and an additional 60%-100% tariff could be imposed on imports specifically from China.
Michael O’Sullivan, CEO at Burlington, on a quarterly call Tuesday noted that it’s unknown to what extent tariffs might be applied but expressed similar comments to Herrman.
“My experience has been that whenever there is significant uncertainty or disruption in the external environment, then while that can be a headwind and a headache for everyone, including us in the short term, the uncertainty and disruption is often very good for off-price retail in the end,” said O’Sullivan. “The reason why uncertainty disruptions often work out well for off-price is that the off-price business model, when it’s well executed, is better able to handle the uncertainty and respond to whatever happens.”
Many apparel and footwear vendors have reduced their exposure to producing apparel and footwear in China due to rising labor costs and geopolitical tensions with the West, but the country remains the largest source of U.S. imports for both categories. The tariff threats are expected to accelerate moves to diversify sourcing.
“It’s an ongoing conversation with our business partners, our manufacturers, our suppliers and making sure that they’re thinking about if something can be made outside of China, that’s going to be advantageous,” Macy’s Inc. chairman and CEO Tony Spring recently said at Yahoo Finance’s Invest conference.
He pointed out that tariff action in the past has “opened up South America and other parts of Asia.”
Walmart, Lowe’s, Best Buy and several industry trade groups have all predicted prices will increase to offset higher production costs related to tariffs. Analysis by the National Retail Federation showed that under Trump’s proposed tariffs, U.S. production of apparel and footwear would expand, but consumers would pay $20 and $32 for every additional dollar earned by U.S. apparel and U.S. footwear producers, respectively.
Matthew Shay, NRF chairman and CEO, said in a statement, “The adoption of across-the-board tariffs on consumer goods and other nonstrategic imports amounts to a tax on American families. It will drive inflation and price increases and will result in job losses.”
Many observers aren’t convinced that Trump will go through with his tariff plans as they may run counter to his goal of bringing down consumer prices. However, on social media posts Monday, Trump vowed to impose tariffs on Mexico, Canada, and China to clamp down on drugs and illegal immigration.
Discussion Questions
Will the implementation and/or threat of tariffs likely be beneficial to off-price retailers?
What near-term and long-term actions should apparel retailers and brands be taking in response to the potential arrival of tariffs?
Poll
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The central point that TJX was making is that even if prices rise across the board because of tariffs, they would still be able to maintain their relative competitive gap on price with mainstream retailers. This is perfectly logical. It is also true that in a higher price or inflationary environment, more consumers switch to off-price to make their money go further. Finally, the supply chain disruption caused by tariffs might create some temporary buying opportunities for off-price. All that said, harsh tariffs would be an ill-wind overall – and I don’t think off-price is wishing them into existence.
I agree completely; and insofar as RW is perfectly entitled to play the impartial observer, nothing wrong with a narrow focus. But as a consumer: who the Hell cares if TJM ‘wins” if we lose?
There will be payoffs from Trump’s tariffs if he limits them to Mexico, China, and maybe a couple more countries. The United States needs tariffs against a few countries to drive and maintain manufacturing in the United States. If you are someone who don’t understand why that is important, please ask someone to explain it to you. We all need to be supporting tariffs against China and Mexico. Frankly, I don’t see the need to impose tariffs on Canada.
I do agree that companies like TJX will benefit from tariffs and consumers might also derive immediate benefits with product discounting as well.
The point also is, they buy a lot of their product landed, especially if the manufacturer or retailer has too much on hand. The tariff is already baked in.
As for near- and long-term actions…well, the industry already let it happen that the guy who wants to do tariffs was elected. It chose not to take sides. Instead, they were busy locking up their product behind plexiglass. Enjoy the fruits of your labor!
PS. I think his overlords (donors) will not let him go through with it
Off-price retailers will benefit from the uncertainty around tariffs in two ways — first major premium-price retailers will seek to stock up in advance of tariff imposition. This stock-up will inevitably lead to excess inventory of some items. The second way that tariffs will assist premium-price retailers will be due to increased demand for discount items as the prices of “regular” retail increase as retailers pass on the tariff cost increase to consumers through higher prices. Through increased supply and increased demand, this will be a strong year for the off-price retail market in general.
The dual dynamics that you called out – inventory stockpiling and increased discount-seeking behavior – perfectly illustrate how market inefficiencies can create unexpected competitive advantages in modern retail. While macroeconomic theory suggests tariffs generally reduce market efficiency, the off-price sector’s unique position suggest their impact might be delayed; however, as retailers breach the threshold into passing additional costs to consumers, this advantage should be viewed as temporary.
Many consumers are often looking for bargains and deals. The off-price retailers will always be recognized for lower prices, regardless of tariffs. Yes, their prices may go up, but they will still be working to provide the best prices to consumers.
There is no doubt that tariffs will raise the cost of goods sold, and the cost will be passed on to consumers. That’s the way business works.
This tariff will impact all businesses, unless they are 100% made in America. In effect, it is a tax increase. It hurts at first, and then most get used to it. In a perfect world, salaries and wages will be adjusted to the inflated prices over time.