This year’s selling conditions for retailers such as TJ Maxx and Ross Stores are hard to predict, but the buying environment is looking favorable
That hit discounters’ margins last year, according to the report. To begin with, direct-buy merchandise is already a lower-margin sale compared with closeout inventory. On top of that, ocean freight got especially expensive last year, making it that much pricier to source dresses and shoes from Asia. Off-price retail was one of the rare spots in apparel retail where margins actually shrank in 2021 compared with 2019.
Now, other retailers’ misfortunes could flip that script. TJX Cos. Chief Executive Ernie Herrman said during the company’s earnings call last Wednesday that the buying environment for inventory is “extremely loaded across the board.” Barbara Rentler, chief executive of Ross Stores,
said in an earnings call Thursday that “there is a lot of supply out there.”
Off-price retailers are getting so many calls with offers of closeout inventory that they started waiting out offers, said Mr. Binetti. “They know they’ll get calls back with better prices.” Mr. Binetti’s team estimates that the return of closeout inventory could add 2.5 percentage points in merchandise margin for off-pricers over the next two years.
Granted, the selling environment doesn’t look as rosy right now, especially for discount chains with more exposure to cash-strapped consumers. TJX, which targets a relatively broad base, logged flat comparable-store sales in its quarter ended April 30 compared with a year earlier. Ross Stores, whose average customer has $60,000 to $65,000 in household income, said comparable-store sales declined 7% over the same period. Ross Stores-owned dd’s DISCOUNTS, which serves an even lower-income demographic ($40,000 to $45,000 in household income), fared even worse.
“I would say the health of our customer…they’re being squeezed—food and fuel prices with inflation there means they have less to spend on discretionary items,” said Michael Hartshorn, chief operating officer at Ross Stores, on the Thursday call with investors.
How well off-price retailers do going forward partly depends on how much the economy slows down. For both off-price chains and dollar stores, sales growth was weak in the early ins of the 2008 recession as their usual customers made fewer purchases. But they ended up thriving once higher-income consumers started feeling squeezed, too.
While predicting the scale of an economic downturn is hard, it is easier to see how treacherous today’s selling environment is for traditional clothing stores that are dealing with quickly shifting consumer preferences at a time when they need to order early to get in front of supply- chain bottlenecks. That makes for an ideal environment for off-price chains, which are nimble operators. Having at least one part of the profit equation in the bag—cheap, plentiful merchandise—is a big advantage.
Even after the recent bloodbath in retail stocks, many still sport higher share prices than they did at the end of 2019, including Macy’s and Target,
A broad basket of retailers—the S&P Retail Select Industry Index—is up by more than one-third since then. By contrast, TJX, Ross and Burlington Stores still go for prices below prepandemic levels.
Investors don’t need to go sifting through the racks at TJ Maxx to find a deal here.
Write to Jinjoo Lee at [email protected]
Credit: www.Businesshala.com /