Are off-pricers immune to apparel’s challenges?
TJX Cos., Ross Stores, Burlington Coat Factory are often mentioned as “Amazon-proof.” But a rare same-store miss in the first quarter by TJX raised some concerns about the off-price channel’s ability to weather the turmoil facing apparel sellers.
Similar to arguments supporting Costco, offering bargains in a treasure-hunt experience has been seen as the primary way off-pricers avoid direct competition with Amazon.
Goldman Sachs analyst Lindsay Drucker Mann further told Barron’s last year that the off-price model “represents the cheapest way to get desired product to consumers” through in-season buying expertise and a supply chain able to turnaround major buys within two to four weeks.
The analyst also felt excess inventory would remain widely available in the marketplace due to the disruptive shifts toward online selling, challenges experienced by department stores, and changing purchasing patterns by consumers.
But TJX’s report of its smallest quarterly comp gain since 2014 and poor outlook raised concerns that the off-price channel may be succumbing to the challenging apparel climate.
Other challenges potentially facing off-pricers:
- Heightened competition from Nordstrom Rack and newcomers like Macy’s Backstage, Off-Aisle by Kohl’s and Find @ Lord & Taylor;
- Rampant liquidation sales in the near term, including those to come from Macy’s, JC Penney and Sears;
- A possible reduction in opportunistic purchasing opportunities with fewer department stores and moves by vendors such as Ralph Lauren and Michael Kors to reduce inventories in the marketplace;
- A limited online presence from TJX and Burlington Coat and none at all from Ross.
For its part, TJX was facing challenging comparisons against a seven percent comp gain last year. Ninety percent of the sales shortfall was blamed on poor weather. Management reassured investors that traffic remains healthy and the current climate works in its favor.
Said Ernie Herrman, TJX president and CEO, on a conference call with analysts, “When many other retailers are closing, we are in a great position to be opportunistic and take advantage of the best deals available.”
- The TJX Companies, Inc. Reports Q1 FY18 Results – TJX
- The TJX Companies, Inc. First-Quarter 2017 Conference Call – Seeking Alpha
- Ross Stores Reports First Quarter Earnings – Ross Stores
- Ross Stores First-Quarter 2017 Conference Call – Seeking Alpha
- Amazon-Proof Retail Stock: TJX Companies – Kiplinger
- Why TJX & Ross Stores are Amazon Proof – Barron’s
- TJX Is Dinged by Department Store Crash – The Wall Street Journal
- Profit, loss for discount retailer TJX – Boston Herald
- T.J. Maxx’s Star Fades – Bloomberg
DISCUSSION QUESTIONS: Do you see the current climate helping or hurting the positioning of off-pricers? What near-term and long-term threats do you see to the off-price model?