Will inflation be positive or negative for off-pricers?
Michael O’Sullivan, CEO at Burlington Stores, believes surging inflation may drive consumers to trade down to off-pricers, but it may also squeeze spending.
“It’s not hard to articulate the risk,” said Mr. O’Sullivan when asked about inflation last week on his company’s fourth-quarter analyst call. “In the coming months, it’s possible that consumers and especially, low-income consumers … will be squeezed as we lap stimulus payments. And at the same time, general price inflation begins to bite, especially on sort of the central items like food and gas.”
A possible offset, he noted, is that lower-wage workers have been seeing strong wage gains amid a labor shortage to possibly mitigate inflationary pressures.
The “big opportunity,” he said, is that during uncertain economic times, consumers’ “natural and rational reaction” is to seek out value.
“Higher inflation affects everybody,” said Mr. O’Sullivan. “As a value leader at Burlington, we should be well positioned in that situation, and we think we might benefit from a trade-down customer.”
Michael Hartshorn, Ross Stores’ COO, noted that with U.S. inflation recently hitting a 40-year high, “we don’t have a ton of experience on how the customer will react.”
He said on a quarterly call last week, “So I’d be speculating as inflation appears at this point to be with us for a while. In general, I’d say the consumer seems to be healthy coming into the year, given higher wages and savings. But obviously, with this level of inflation throughout the economy, they’re going to have to make choices how and where they spend their money, and it’s highly likely the consumer will be seeking value, and that would be positive for us.”
Ernie Herrman, TJX’s CEO, said higher prices across retail are enabling TJX to “get even more aggressive about adjusting our retails” to help offset freight and wage pressures. But he also believes consumers would trade down to save money. Mr. Herrman told analysts, “Anytime there’s uneasiness, I would say, it’s just a great opportunity for our model to accelerate a little bit more.”
- Burlington Stores, Inc. Reports Fourth Quarter 2021 Results – Burlington Stores
- Burlington Stores’ (BURL) CEO Michael O’Sullivan on Q4 2021 Results – Earnings Call Transcript – Seeking Alpha
- Inflation is high, but wage gains for low-income workers are higher. For now – Fortune
- Ross Stores Reports Fourth Quarter And Fiscal 2021 Results And Provides First Quarter And Fiscal 2022 Outlook – Ross Stores
- Ross Stores, Inc. (ROST) Q4 2021 Earnings Call Transcript – Alpha Street
- The TJX Companies, Inc. Reports Very Strong U.S. Open-Only Comp Store Sales Growth Of 13% For Q4 FY22 Vs. Q4 FY20; FY22 U.S. Open-Only Comp Sales Up 17% Vs. FY20; Announces Plans To Increase Dividend 13% And Buy Back $2.25 To $2.50 Billion Of Stock – The TJX Companies
- The TJX Companies, Inc. (TJX) CEO Ernie Herrman on Q4 2022 Results – Earnings Call Transcript – Seeking Alpha
DISCUSSION QUESTIONS: Will surging inflationary pressures likely offer more of a benefit or drawback for off-pricers? Do you see product availability, the promotional climate or some other factor having the biggest impact on the channel over the next year?