Retailers that play in this sector are facing an uphill battle getting their hands on desirable, hot-selling goods, thanks to a buying landscape that rates more like a “6 or 7” than the “8 or 9” it was before Covid-19’s disruptive impact, according to UBS analyst Jay Sole, citing conversations with a former off-price merchandising executive.
Given that off-pricers rely on castoffs from department stores, which broadly scaled back their own vendors orders when the coronavirus shuttered brick and mortar, the market simply has fewer goods to go around, the executive told Sole. And just as the holiday season shifts into high gear, off-price shelves and racks are largely barren of denim, athleisure and active fashion, season-right boots, shoes, accessories and in-demand labels like Nike, Calvin Klein and Adidas, the source said of a lack of inventory in these areas.
This dearth of salable inventory “could lead to a mix shift to lower price items, creating a sales growth headwind,” Sole said.
If there’s a good bit of news, it’s that the holy trinity of off price—TJX, Ross and Burlington—took advantage of a rocky back-to-school season to enter Q4 in a clean inventory position, the executive said.
But which is positioned to meet shopper demand this holiday?
TJ Maxx and Marshalls parent TJX displays strength in home goods, with stores well stocked despite a paltry showing in top-brand inventory that lures shoppers into stores, the executive said. Burlington, meanwhile, appears to have sufficient inventory in outerwear, toys and kids’, amid lower stock levels versus last year. Ross seems to have the least amount of inventory, included fewer options in sweaters, fragrance, beauty and other key holiday categories consumers are looking for,
Off-pricers might be able to boost inventory levels over the next two weeks leading into Thanksgiving. It also may face fewer Covid-19 store operation challenges in the fourth quarter, mostly because traffic levels tend not to spike as high as in other channels, such as department stores, around the Thanksgiving weekend.
So what’s ahead?
This expert believes that the inventory buying environment would likely return to normal in fiscal year 2021. There’s a chance they also could continue to take some market share from the department store channel. But one big caveat remains—the former executive noted that off-pricers will have to “figure out” online selling, especially if consumers elect to stay with their new online shopping habits.