Will lean inventories derail off-pricers?

Discussion
Photo: Getty Images/Sundry Photography
Nov 29, 2021

Off-pricers on third quarter analyst calls claim their business model still works in periods of constrained inventory levels and high inflation.

The quarter marked a continued strong recovery for off-pricers. Compared to 2019, same-store sales rose 14 percent at both TJX Cos and Ross Stores and 16 percent at Burlington Stores.

Michael O’Sullivan, Burlington’s CEO, told analysts one reason Burlington’s growth has accelerated since 2019 is because leaner inventories in the marketplace are driving more full-price sales at branded retailers. “The delta between the price of an item at Burlington and the price of a like item at a full price store has never been greater,” he said.

If full-price stores continue to limit promotions in coming quarters, off-pricers will likely capture additional market share, raise their retail prices or do both, he said. If they return to being more promotional, he suspects “another wave of consolidation of marginally profitable” full-price stores. Mr. O’Sullivan added, “In either scenario, we think that the long-term implications for Burlington are very favorable.”

Regarding inflation pressures, Mr. O’Sullivan said, “In an environment of rising prices, we think shoppers will be even more attracted to the great value that we offer.”

From a supply standpoint, Ernie Herrman, TJX’s CEO, said off-pricer’s flexible model offers a “tremendous advantage” in managing shortages. He said, “We have been able to expand and contract categories and merchandise in our stores so that customers have full racks and shelves to shop when they visit.”

The retailers are using packaway inventories to help make up for shortfalls and are expected to take advantage of opportunistic buying opportunities. Longer term, the current aggressive pre-orders are eventually expected to turn scarcity into abundance.

Mr. Herrman believes wholesalers are counting on the off-price channel “for the cleanup” in case of pre-order over-buys.

He also believes off-pricers have become “probably more important” to the marketplace as they have bailed out many brands during the pandemic. “When you look at the amount of volume that we’re doing with those upstairs brands, I believe that we will continue to be able to leverage those relationships well through ’22,” he said.

DISCUSSION QUESTIONS: What advantages do off-pricers have in an environment marked by tight inventory levels and high inflation? Will the advantages overcome the disadvantages?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Off-pricers have an advantage because shoppers are more likely to treasure hunt and not be as discouraged by replacement inventory and/or unusual items. "
"Current supply chain issues will create opportunities for off-price retailers."
"Opportunistic buying should swing back in favor of off-price retailers as we move past the holiday season."

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12 Comments on "Will lean inventories derail off-pricers?"


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Suresh Chaganti
BrainTrust

Overall inventory levels may be low, but that doesn’t mean the right levels of inventory. There is always excess in some categories/products, while others have stockouts.

But it is true that discount retailers and treasure hunt stores like Ross and Burlington are going to be impacted to an extent. A recent visit to Burlington was a disappointment with a very anemic selection even in their core winter coat categories. Their job is made a little harder and they have to recalibrate their assortments.

Jeff Sward
BrainTrust

There’s a big difference between lean inventory and late inventory. Late inventory will experience less on-floor selling time than originally planned and possibly higher levels of end-of-season residual inventory. It’s a boon for the off-pricers and a boondoggle for mall retailers and brands.

Kevin Graff
BrainTrust

The usual double-edged sword applies here. Limited inventory due to supply chain issues in “full price” stores results in less discounting needed to clear it out, creating a great opportunity for off-price stores to create an even larger wedge between themselves and their full-price competitors.

Yet, on the other side of the sword is that these same supply chain challenges affect them as well. My visits to these discount retailers lately have been disappointing due to extremely low inventory levels. You can’t discount an item if you don’t have it.

Dave Wendland
BrainTrust

Off-pricers have an advantage over “traditional” full-price retailers because shoppers are more likely to treasure hunt and not be as discouraged by replacement inventory and/or unusual items. Retailers are over-stocking on what happens to be available in the supply chain which may affect full-price operators far more than off-pricers. The value offered by this channel will increasingly become a competitive advantage as inflation continues to mount.

Liza Amlani
BrainTrust

Customers seek out off-price retail for prices, the treasure hunt, and high-turning inventory. As more full-price retailers experience supply chain delays, more inventory will land on the off-price shop floor.

Dave Wendland
BrainTrust

Well said, Liza. I believe your prediction is spot on.

Jennifer Bartashus
BrainTrust

Finding deals is at the forefront of consumer minds, and off-price helps meet that demand. Opportunistic buying should swing back in favor of off-price retailers as we move past the holiday season. Many retailers pushed inventory levels up in anticipation of shipping delays, and with discounts not as robust as in previous years may have difficulty selling through that inventory without needing to take markdowns or push stock to off-price retail.

Andrew Blatherwick
BrainTrust
Off-price retail requires discipline and control to make it work. They have to make sure to get a good range and great staff without the frills of the full price retailers. It is about the experience, the excitement of finding a great deal or something you want at a much lower price than you might expect. In times of high inflation people are more inclined to be looking for that bargain. Wage inflation usually lags price inflation and post COVID-19 there are still a lot of people out of work or really struggling to recover financially so the off-price stores are offering a real service. Once people shop there and like what they see they are likely to return and become loyal shoppers. The inventory shortages are much more likely to impact full price stores that cannot pick up packages of stock in the way off-price can so here again they are in a great place. They have had a good couple of years and should enjoy that extending for a few more yet. The… Read more »
Shawn Harris
BrainTrust

Current supply chain issues will create opportunities for off-price retailers. They will sharpen the pencil with suppliers, buying goods sitting in ports for future sell-through, yet remain liquid enough to cut great deals on goods abroad that others would ship, and fly them into the country. Well managed off-price retailers like TJX, Burlington, and Ross will seize the opportunity in front of them.

Craig Sundstrom
Guest

I agree with Mr. O’Sullivan: a period of high inflation should help off-pricers — all else being equal — if for no other reason that it will make everyone more conscious of price (why? one wonders would it be harmful … or at least any more harmful than in other sectors). Of course all else isn’t equal if there are inventory issues, but, again, why should “off-price” be singled out?

Anyway, these are all transitory issues; the bigger one long-term is the sector’s slow conversion to online (and implicitly the fear that it really can’t make the move).

AB3
Guest

Off-price has had a great run since the last recession. I am skeptical that will continue. Off-price has lagged behind in the online space and is overstored. Their product is going to have to become more and more differentiated between full-price offerings, and sadly their only real differentiator is price. That, coupled with a push towards sustainability/less consumption will challenge this industry. The lesson of the last recession was sales. Full-line Stores finally have more leverage to reset and increase their margins and percent of full price purchases. They’d be mad to give that up!

Anil Patel
BrainTrust

Perceived brand value and the product pricing are directly related. Customers’ inability to obtain these products drives the business of off-pricers. This makes me optimistic for off-price retailers.

wpDiscuz
Braintrust
"Off-pricers have an advantage because shoppers are more likely to treasure hunt and not be as discouraged by replacement inventory and/or unusual items. "
"Current supply chain issues will create opportunities for off-price retailers."
"Opportunistic buying should swing back in favor of off-price retailers as we move past the holiday season."

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