Will off-pricers be major share gainers post-coronavirus?
Photo: Getty Images/hapabapa

Analysts have upgraded TJX Cos. and Ross Stores in recent days as the uncertainty and downturn caused by the coronavirus spurs defensive measures from full-line retailers.

In upgrading TJX to “outperform,” Credit Suisse analyst Michael Binetti wrote in a note to clients that he believes the widespread cancellation of orders by full-line retailers “will create the greatest buying environment for off-price in a decade.” Conversations with brands, including those working to reduce their off-price exposure in recent years, indicate they expect to re-engage to clear inventory starting in the second half of 2020.

Moreover, Mr. Binetti expects the inventory overhang to linger well into 2021. “Like in the last recession, the consumer will continue value-seeking behavior even as economic conditions improve,” he wrote.

In upgrading TJX to “outperform” RBC Capital’s Kate Fitzsimons said she believes the COVID-19 pandemic will accelerate consolidation among broad-line retail. The analyst wrote in a note, “With retail bankruptcies likely to mount in the coming months and further industry consolidation ahead, we expect big to get bigger, with TJX likely to be the biggest share beneficiary globally.”

In a note to clients, Goldman Sachs’ Alexandra Walvis also pointed to the favorable environment for excess inventory as well as the flexible business models of off-pricers. She further highlighted off-price’s resiliency during periods of economic weakness, as witnessed by significant market share gains by the channel during the Great Recession.

Ms. Walvis wrote, “We believe this is due to the value positioning of these businesses, which benefit from consumer downtrading during periods of weaker consumer incomes. We would expect similar dynamics should a period of consumer spending weakness follow COVID-19 disruption.”

The upgrades come despite both retailers facing near-term cash flow pressures due to a lack of e-commerce at Ross Stores and minimal online business at TJX amid the store closures. Both generally have strong balance sheets and have taken steps in recent days to shore up liquidity.

Other risks for both include heightened direct competition, store saturation and vendors eventually focusing on reducing off-price exposure.

BrainTrust

“One thing is certain for off-pricers. The CFO is officially the most important employee in the company.”

Ken Cassar

Principal, Cassarco Strategy & Analytic Consultants


“Off-pricers may actually lose some of their competitive advantage for a while as mall retailers compete as they have never before had to compete.”

Jeff Sward

Founding Partner, Merchandising Metrics


“We are going to witness the greatest apparel clearance sale in history. With so many stores and warehouses locked down, that merchandise grows older by the day.”

Bob Phibbs

President/CEO, The Retail Doctor

Discussion Questions

DISCUSSION QUESTIONS: Are off-pricers poised to gain significant market share due to the disruption being caused by the coronavirus pandemic? Will the downplaying of online operations become an Achilles’ heel for companies like Ross Stores and TJX?

Poll

How likely are off-pricers to achieve significant market share gains in a post COVID-19 environment?

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26 responses to “Will off-pricers be major share gainers post-coronavirus?”

  1. Mark Ryski Avatar
    Mark Ryski

    These retailers are well positioned, but it’s not smooth sailing either. As noted the market disruption is going to create an enormous amount of inventory for the off-pricers, but ultimately this inventory needs to sell through. If due to social distancing and or store closures, customers can’t buy the goods in-store, off-pricers will struggle to drive sales. Not having a strong online business doesn’t help their situation. The key is store closures. If stores remain open, off-pricers will do well; if stores are forced to close, off-pricers can’t sell their goods.

    1. Dick Seesel Avatar
      Dick Seesel

      All of the TJX branded stores are closed for the foreseeable future, so that doesn’t help matters in the short term. These stores have seasonal goods to sell (and can’t sell them) just like the department stores who are canceling orders like crazy. As I said on a recent post, this product has an expiration date.

      That being said, I agree the off-pricers will continue to gain share, if for no other reason than mall-based retailers suffering more than ever in the aftermath of COVID-19.

      1. Meaghan Brophy Avatar
        Meaghan Brophy

        Agreed, Mark and Dick. Off-price retailers have a great opportunity to scoop up deeply discounted products. But they will not be able to cash in on that opportunity until stores re-open and people feel comfortable shopping in-store again

  2. Art Suriano Avatar
    Art Suriano

    Off-price retailers were doing exceptionally well during the economic good times, so it stands to reason they’ll do even better once retail stores are allowed to open. Between the number of people who will be out of work along with those still working but concerned about their future, off-price retailers will provide a great option when consumers need goods and want to spend as little as possible. And even as things slowly improve economically, off-price retailers will continue to have a significant presence because consumers are always price conscious no matter how good or bad the economy is.

    1. Bob Amster Avatar
      Bob Amster

      Off-price businesses will do better only to the extent that the consumer has discretionary money to spend. That may not be the case for a few months after all doors open.

      1. Art Suriano Avatar
        Art Suriano

        True Bob, but consumers will always have necessities. Surely the unemployed worker who just got the important job interview will be inclined to run to the off-price store for a new outfit. I do believe that once this is over, we’ll bounce back fairly quickly. Off-price stores did rather well during the last recession and overall they seem to have a recession-proof business so as I said, I think they will do fine.

  3. Bob Phibbs Avatar
    Bob Phibbs

    We are going to witness the greatest apparel clearance sale in history. With so many stores and warehouses locked down, that merchandise grows older by the day. Brands and retailers will be stepping over themselves to get it cleared as quickly as possible. There simply aren’t enough third parties, off-pricers or outlet stores to handle it all. I am afraid a lot will end up in landfills as demand will not scale up as quickly as retailers discount.

    1. Suresh Chaganti Avatar
      Suresh Chaganti

      Luxury brands may forego a season or two and release inventory when things settle down. Between diluting their brand with discounts, burning the inventory or not releasing new collections at all, I think they will go slow and be prepared for demand to come back up. The fast fashion brands will certainly have to dump a lot.

      1. Bob Phibbs Avatar
        Bob Phibbs

        Totally agreed Suresh. It’s going to be ugly for a while.

    2. Cynthia Holcomb Avatar
      Cynthia Holcomb

      I agree with you, Bob. Landfills are the likely destinations for a good portion of COVID-19 apparel inventories, Off-price is not set up to handle full scale merchandised, SKU heavy branded apparel collections. Off-price retail is an item business, one of a kind. Off-price outlet stores are not set up to manage a small portion of the apparel purge ahead. An opportunity for a new type of off-price retail?

  4. Suresh Chaganti Avatar
    Suresh Chaganti

    The other day we were talking about rescuing middle-market retailers. In contrast to those, off-price retailers are well positioned for couple of reasons: 1.) Their value proposition is well defined and 2.) Their supply chain is well streamlined.

    But the problem for them is their e-commerce sites and fulfillment operations are not up to par. In fact, Burlington Coat Factory completely exited e-commerce few weeks before the coronavirus pandemic. And people are not going to visit retail stores in a big way for next two months at least.

    While the opportunity is there, there are a number of challenges to capitalize on those opportunities.

  5. Stephen Rector Avatar
    Stephen Rector

    Once things re-open, off-price will take market share – they will have a large amount of inventory to pick through. Not just from what department stores can’t absorb, but also from specialty stores like Zara, American Eagle, etc. The off-price companies will have a field day with this opportunity, driving the cost down to probably almost free based on how much inventory will need to disappear.

  6. Rich Kizer Avatar
    Rich Kizer

    Every customer has a computer in their brain that calculates value comparisons between products. Normally as the price goes down, the value goes up, thus a purchase. I talked about merchandise cancellations to vendors during this tragic time in past comments. Obviously, that is why orders are written with the instructions: “Do not ship before date,” and “cancel if not shipped by date.” And some cancellations were demanded. Cancellations were the right thing to do for many retailers. Now those products will be offered to value retailers at a price, and customers who are cash light will find windfalls of great deals in these off-price offerings, thus creating a strong foot traffic environment.

  7. Richard Hernandez Avatar
    Richard Hernandez

    I don’t know if they will gain more – the focus will be on essentials for a while and clothing, purses and furniture may not be top-of-mind for some time. I think more than anything stores (non-food) are sitting on spring inventory or inventory in general that is not selling as those stores are mostly closed due to non-essential business closure ordinances. I suspect they will need to mark down the merchandise just to sell it.

  8. Ken Cassar Avatar
    Ken Cassar

    Off-pricers have a set of very important choices ahead. How much cash needs to be set aside to keep them resilient, while taking advantage of inventory opportunities? At today’s low interest rates, I’ll bet that debt becomes an important tool. One thing is certain for off-pricers. The CFO is officially the most important employee in the company.

  9. Neil Saunders Avatar
    Neil Saunders

    Off-pricers will come back reasonably well from this crisis. However no one should be under any illusions about their businesses being badly affected by this, at least in the short-term as stores remain closed and their online offerings remain weak and so can’t take up the slack.

    I expect the promotional environment to be punishing in apparel when stores reopen and that can be detrimental to off-pricers as it gives consumers on a budget more choice of where to buy. That said, longer-term this segment of retail remains a winner.

  10. Mohamed Amer Avatar
    Mohamed Amer

    Off-price retailers have a natural advantage during times of economic difficulty, but it’s a relative advantage to other retailers. That advantage now exists within a shrinking demand pie. With stores closed at both chains and online distribution center operations halted at TJX, no advantage is currently accruing to these off-pricers.

    Post-coronavirus, I expect a slow return to customers being comfortable in a crowded physical store, less likely to trust that highly trafficked aisles and touched merchandise is virus-free. Lacking online capabilities, Ross Stores will be more impacted than TJX.

    Bottom line, the upgrades are premature and overly optimistic; any upside potential will greatly vary by whether or not they have strong online capabilities and can mitigate the virus-fueled in-store customer concerns.

  11. Dave Bruno Avatar
    Dave Bruno

    Upgrading off-pricers is merely a relative comparison, I am afraid. Will off-pricers do better than full-line? Probably. Will they do well? Not likely for a long time. Not until discretionary income rebounds and inventory cycles return to whatever normal will look like after the huge clearance sales that are looming.

  12. Ken Morris Avatar
    Ken Morris

    Off-price retailers will be the big winners post COVID-19 assuming people actually go back into stores. People aren’t buying fashion online in these times. There will be a glut of merchandise being cleared by those who are in the death spiral of Chapter 11 as well as those healthy retailers who have committed to orders that could not be canceled. The real question is when will that be. I believe we may be shopping with gloves and masks but we will be shopping. It is very hard to buy off-price fashion online which is why it hasn’t taken off to date. The treasure hunt aspect is tough to duplicate online and the economics of high return rates for fashion goods doesn’t make financial sense for a retailer. I believe the financial analysts are correct in their assumption that this space will thrive after this apocalyptic pandemic.

  13. Lisa Goller Avatar
    Lisa Goller

    Yes, off-pricers have a distinct competitive edge due to the pandemic.

    For the past decade, value shopping habits continued even in the strong economy that followed the 2008 recession. Burdened by high student debt and fewer full-time jobs, Millennials sought deals, as did the elderly living on lower incomes.

    The pandemic will only fuel further bargain hunting.

    Overall, apparel is taking a huge hit, especially as unemployment soars. Yet, in 2020, off-price apparel retailers will become more attractive for their superior affordability and variety.

    In other categories, discount grocers like Aldi and Lidl are already positioned to perform well. The dollar channel will continue to boom. Dollar General is the best positioned because it recently added BOPIS service, more fresh produce and big brands at affordable prices.

    Also, Amazon has been wisely targeting lower-income shoppers with a discounted Prime program and a “$10 & Under” section to remain accessible to consumers of all socioeconomic levels. In 2020, online service is clearly one of the biggest key success factors.

  14. Chuck Palmer Avatar
    Chuck Palmer

    Given the glut of spring/summer inventory out there and the timing of when we think stores will re-open, we may see off-price retailers gain new share. We may also see unsold inventory–especially in colder climates–stick around for a year or be re-directed to warmer environments and heavily discounted.

    Consumers will be in a value mindset for a significant period, but as back-to-school and holiday looms over merchants’ heads, they’ll need to free up open-to-buy.

    While value retailers will benefit in the relative short term, they can’t take all the inventory that is out there.

    I would expect those same retailers to re-think their online positions and messaging. No business today can ignore the vital importance of connecting with consumers online, especially for transactional sales.

  15. Steve Dennis Avatar
    Steve Dennis

    The trends that have driven out-sized growth in the off-price segment for many years are likely to persist. During the second half of this year (assuming we get back to some semblance of normalcy), I expect off-price to benefit disproportionately–for three reasons.

    First, much like we saw in the aftermath of the financial crisis, there will be an unusual abundance of distressed inventory that other retailers and manufacturers will need to turn to cash. This will improve the supply side equation for off-pricers materially.

    Second, severe recession (or even depression-like) economic conditions will drive more trading down for value. Depending upon how deep and long the downturn lasts this may be more of a relative gain than an absolute one as overall spending on non-essentials is likely to remain muted.

    Third, unfortunately the pandemic is likely to push many struggling retailers (think J.C. Penney, but other as well) into major retrenchment or even liquidation. This consolidation will provide further market share grabbing opportunities for the off-price sector and other well positioned retailers with strong balance sheets.

  16. Jeff Sward Avatar
    Jeff Sward

    It’s entirely possible that the malls re-open with clearance sale pricing rivaling or beating anything TJMaxx offers. TJMaxx had already filled their “normal” OTB with an appropriate level of product. Now there will be months of unsold inventory looking for a home. Part of the demand will have been pent up and want to be filled. And part of the demand will simply have evaporated. Talk about four pounds in a two pound bag. Talk about race-to-the-bottom pricing. Fall/holiday will see “sales” like never before. And margins like never before — meaning bad margins. And even after the inventory glut is dealt with, how does any given retailer determine when they can reasonably calculate demand for their product with any reasonable level of accuracy? Off-pricers may actually lose some of their competitive advantage for a while as mall retailers compete as they have never before had to compete.

  17. Ricardo Belmar Avatar
    Ricardo Belmar

    Yes, there is a potential upside for off-price retailers given the excess inventory building up right now while the apparel industry is effectively paralyzed by COVID-19. But it isn’t smooth sailing, either! They still need stores to re-open since most have no or limited online e-commerce capabilities. While that seemed like an unnecessary luxury to these brands as recently as a couple of months ago, it’s starting to look like a major liability. Perhaps off-price brands will come out of the crisis with a new online presence to supplement re-opened stores flush with “new” merchandise a few months from now. There is also the question of whether or not their stores have the capacity to handle the volume of apparel that’s expected. Department stores will certainly be looking to heavily discount the spring/summer fashions they have leftover for the season and it’s not clear what the apparel brands will do for fall at this point either if their operations are halted in the meantime.

  18. David Naumann Avatar
    David Naumann

    Off-price retailers that lacked a focus on e-commerce is a now probably their regret. Those that have an online presence can hopefully shift inventory from stores or new orders from manufacturers that now have or will have a glut of excess inventory.

    After the coronavirus pandemic, the off-price market will do very well. After the 2008 financial crisis, we saw a huge increase in off-price retail sales and this crisis is going to have a more severe impact on consumers’ income.

  19. Craig Sundstrom Avatar
    Craig Sundstrom

    During the Great Depression, “bargain basements” helped many stores survive. Of course that was during; afterward, the economy revived and whole new ways of selling developed. But it doesn’t take much imagination to think that low cost will do well in the short term (indeed it’s hard to imagine it NOT doing well). I don’t think the (lack of) online part will matter much … at least not any more than it does already.

26 Comments
oldest
newest
Mark Ryski
Mark Ryski
3 years ago

These retailers are well positioned, but it’s not smooth sailing either. As noted the market disruption is going to create an enormous amount of inventory for the off-pricers, but ultimately this inventory needs to sell through. If due to social distancing and or store closures, customers can’t buy the goods in-store, off-pricers will struggle to drive sales. Not having a strong online business doesn’t help their situation. The key is store closures. If stores remain open, off-pricers will do well; if stores are forced to close, off-pricers can’t sell their goods.

Dick Seesel
Dick Seesel
  Mark Ryski
3 years ago

All of the TJX branded stores are closed for the foreseeable future, so that doesn’t help matters in the short term. These stores have seasonal goods to sell (and can’t sell them) just like the department stores who are canceling orders like crazy. As I said on a recent post, this product has an expiration date.

That being said, I agree the off-pricers will continue to gain share, if for no other reason than mall-based retailers suffering more than ever in the aftermath of COVID-19.

Meaghan Brophy
Meaghan Brophy
  Dick Seesel
3 years ago

Agreed, Mark and Dick. Off-price retailers have a great opportunity to scoop up deeply discounted products. But they will not be able to cash in on that opportunity until stores re-open and people feel comfortable shopping in-store again

Art Suriano
Art Suriano
3 years ago

Off-price retailers were doing exceptionally well during the economic good times, so it stands to reason they’ll do even better once retail stores are allowed to open. Between the number of people who will be out of work along with those still working but concerned about their future, off-price retailers will provide a great option when consumers need goods and want to spend as little as possible. And even as things slowly improve economically, off-price retailers will continue to have a significant presence because consumers are always price conscious no matter how good or bad the economy is.

Bob Amster
Bob Amster
  Art Suriano
3 years ago

Off-price businesses will do better only to the extent that the consumer has discretionary money to spend. That may not be the case for a few months after all doors open.

Art Suriano
Art Suriano
  Bob Amster
3 years ago

True Bob, but consumers will always have necessities. Surely the unemployed worker who just got the important job interview will be inclined to run to the off-price store for a new outfit. I do believe that once this is over, we’ll bounce back fairly quickly. Off-price stores did rather well during the last recession and overall they seem to have a recession-proof business so as I said, I think they will do fine.

Bob Phibbs
Bob Phibbs
3 years ago

We are going to witness the greatest apparel clearance sale in history. With so many stores and warehouses locked down, that merchandise grows older by the day. Brands and retailers will be stepping over themselves to get it cleared as quickly as possible. There simply aren’t enough third parties, off-pricers or outlet stores to handle it all. I am afraid a lot will end up in landfills as demand will not scale up as quickly as retailers discount.

Suresh Chaganti
Suresh Chaganti
  Bob Phibbs
3 years ago

Luxury brands may forego a season or two and release inventory when things settle down. Between diluting their brand with discounts, burning the inventory or not releasing new collections at all, I think they will go slow and be prepared for demand to come back up. The fast fashion brands will certainly have to dump a lot.

Bob Phibbs
Bob Phibbs
  Suresh Chaganti
3 years ago

Totally agreed Suresh. It’s going to be ugly for a while.

Cynthia Holcomb
Cynthia Holcomb
  Bob Phibbs
3 years ago

I agree with you, Bob. Landfills are the likely destinations for a good portion of COVID-19 apparel inventories, Off-price is not set up to handle full scale merchandised, SKU heavy branded apparel collections. Off-price retail is an item business, one of a kind. Off-price outlet stores are not set up to manage a small portion of the apparel purge ahead. An opportunity for a new type of off-price retail?

Suresh Chaganti
Suresh Chaganti
3 years ago

The other day we were talking about rescuing middle-market retailers. In contrast to those, off-price retailers are well positioned for couple of reasons: 1.) Their value proposition is well defined and 2.) Their supply chain is well streamlined.

But the problem for them is their e-commerce sites and fulfillment operations are not up to par. In fact, Burlington Coat Factory completely exited e-commerce few weeks before the coronavirus pandemic. And people are not going to visit retail stores in a big way for next two months at least.

While the opportunity is there, there are a number of challenges to capitalize on those opportunities.

Stephen Rector
Stephen Rector
3 years ago

Once things re-open, off-price will take market share – they will have a large amount of inventory to pick through. Not just from what department stores can’t absorb, but also from specialty stores like Zara, American Eagle, etc. The off-price companies will have a field day with this opportunity, driving the cost down to probably almost free based on how much inventory will need to disappear.

Rich Kizer
Rich Kizer
3 years ago

Every customer has a computer in their brain that calculates value comparisons between products. Normally as the price goes down, the value goes up, thus a purchase. I talked about merchandise cancellations to vendors during this tragic time in past comments. Obviously, that is why orders are written with the instructions: “Do not ship before date,” and “cancel if not shipped by date.” And some cancellations were demanded. Cancellations were the right thing to do for many retailers. Now those products will be offered to value retailers at a price, and customers who are cash light will find windfalls of great deals in these off-price offerings, thus creating a strong foot traffic environment.

Richard Hernandez
Richard Hernandez
3 years ago

I don’t know if they will gain more – the focus will be on essentials for a while and clothing, purses and furniture may not be top-of-mind for some time. I think more than anything stores (non-food) are sitting on spring inventory or inventory in general that is not selling as those stores are mostly closed due to non-essential business closure ordinances. I suspect they will need to mark down the merchandise just to sell it.

Ken Cassar
Ken Cassar
3 years ago

Off-pricers have a set of very important choices ahead. How much cash needs to be set aside to keep them resilient, while taking advantage of inventory opportunities? At today’s low interest rates, I’ll bet that debt becomes an important tool. One thing is certain for off-pricers. The CFO is officially the most important employee in the company.

Neil Saunders
Neil Saunders
3 years ago

Off-pricers will come back reasonably well from this crisis. However no one should be under any illusions about their businesses being badly affected by this, at least in the short-term as stores remain closed and their online offerings remain weak and so can’t take up the slack.

I expect the promotional environment to be punishing in apparel when stores reopen and that can be detrimental to off-pricers as it gives consumers on a budget more choice of where to buy. That said, longer-term this segment of retail remains a winner.

Mohamed Amer
Mohamed Amer
3 years ago

Off-price retailers have a natural advantage during times of economic difficulty, but it’s a relative advantage to other retailers. That advantage now exists within a shrinking demand pie. With stores closed at both chains and online distribution center operations halted at TJX, no advantage is currently accruing to these off-pricers.

Post-coronavirus, I expect a slow return to customers being comfortable in a crowded physical store, less likely to trust that highly trafficked aisles and touched merchandise is virus-free. Lacking online capabilities, Ross Stores will be more impacted than TJX.

Bottom line, the upgrades are premature and overly optimistic; any upside potential will greatly vary by whether or not they have strong online capabilities and can mitigate the virus-fueled in-store customer concerns.

Dave Bruno
Dave Bruno
3 years ago

Upgrading off-pricers is merely a relative comparison, I am afraid. Will off-pricers do better than full-line? Probably. Will they do well? Not likely for a long time. Not until discretionary income rebounds and inventory cycles return to whatever normal will look like after the huge clearance sales that are looming.

Ken Morris
Ken Morris
3 years ago

Off-price retailers will be the big winners post COVID-19 assuming people actually go back into stores. People aren’t buying fashion online in these times. There will be a glut of merchandise being cleared by those who are in the death spiral of Chapter 11 as well as those healthy retailers who have committed to orders that could not be canceled. The real question is when will that be. I believe we may be shopping with gloves and masks but we will be shopping. It is very hard to buy off-price fashion online which is why it hasn’t taken off to date. The treasure hunt aspect is tough to duplicate online and the economics of high return rates for fashion goods doesn’t make financial sense for a retailer. I believe the financial analysts are correct in their assumption that this space will thrive after this apocalyptic pandemic.

Lisa Goller
Lisa Goller
3 years ago

Yes, off-pricers have a distinct competitive edge due to the pandemic.

For the past decade, value shopping habits continued even in the strong economy that followed the 2008 recession. Burdened by high student debt and fewer full-time jobs, Millennials sought deals, as did the elderly living on lower incomes.

The pandemic will only fuel further bargain hunting.

Overall, apparel is taking a huge hit, especially as unemployment soars. Yet, in 2020, off-price apparel retailers will become more attractive for their superior affordability and variety.

In other categories, discount grocers like Aldi and Lidl are already positioned to perform well. The dollar channel will continue to boom. Dollar General is the best positioned because it recently added BOPIS service, more fresh produce and big brands at affordable prices.

Also, Amazon has been wisely targeting lower-income shoppers with a discounted Prime program and a “$10 & Under” section to remain accessible to consumers of all socioeconomic levels. In 2020, online service is clearly one of the biggest key success factors.

Chuck Palmer
Chuck Palmer
3 years ago

Given the glut of spring/summer inventory out there and the timing of when we think stores will re-open, we may see off-price retailers gain new share. We may also see unsold inventory–especially in colder climates–stick around for a year or be re-directed to warmer environments and heavily discounted.

Consumers will be in a value mindset for a significant period, but as back-to-school and holiday looms over merchants’ heads, they’ll need to free up open-to-buy.

While value retailers will benefit in the relative short term, they can’t take all the inventory that is out there.

I would expect those same retailers to re-think their online positions and messaging. No business today can ignore the vital importance of connecting with consumers online, especially for transactional sales.

Steve Dennis
Steve Dennis
3 years ago

The trends that have driven out-sized growth in the off-price segment for many years are likely to persist. During the second half of this year (assuming we get back to some semblance of normalcy), I expect off-price to benefit disproportionately–for three reasons.

First, much like we saw in the aftermath of the financial crisis, there will be an unusual abundance of distressed inventory that other retailers and manufacturers will need to turn to cash. This will improve the supply side equation for off-pricers materially.

Second, severe recession (or even depression-like) economic conditions will drive more trading down for value. Depending upon how deep and long the downturn lasts this may be more of a relative gain than an absolute one as overall spending on non-essentials is likely to remain muted.

Third, unfortunately the pandemic is likely to push many struggling retailers (think J.C. Penney, but other as well) into major retrenchment or even liquidation. This consolidation will provide further market share grabbing opportunities for the off-price sector and other well positioned retailers with strong balance sheets.

Jeff Sward
Jeff Sward
3 years ago

It’s entirely possible that the malls re-open with clearance sale pricing rivaling or beating anything TJMaxx offers. TJMaxx had already filled their “normal” OTB with an appropriate level of product. Now there will be months of unsold inventory looking for a home. Part of the demand will have been pent up and want to be filled. And part of the demand will simply have evaporated. Talk about four pounds in a two pound bag. Talk about race-to-the-bottom pricing. Fall/holiday will see “sales” like never before. And margins like never before — meaning bad margins. And even after the inventory glut is dealt with, how does any given retailer determine when they can reasonably calculate demand for their product with any reasonable level of accuracy? Off-pricers may actually lose some of their competitive advantage for a while as mall retailers compete as they have never before had to compete.

Ricardo Belmar
Ricardo Belmar
3 years ago

Yes, there is a potential upside for off-price retailers given the excess inventory building up right now while the apparel industry is effectively paralyzed by COVID-19. But it isn’t smooth sailing, either! They still need stores to re-open since most have no or limited online e-commerce capabilities. While that seemed like an unnecessary luxury to these brands as recently as a couple of months ago, it’s starting to look like a major liability. Perhaps off-price brands will come out of the crisis with a new online presence to supplement re-opened stores flush with “new” merchandise a few months from now. There is also the question of whether or not their stores have the capacity to handle the volume of apparel that’s expected. Department stores will certainly be looking to heavily discount the spring/summer fashions they have leftover for the season and it’s not clear what the apparel brands will do for fall at this point either if their operations are halted in the meantime.

David Naumann
David Naumann
3 years ago

Off-price retailers that lacked a focus on e-commerce is a now probably their regret. Those that have an online presence can hopefully shift inventory from stores or new orders from manufacturers that now have or will have a glut of excess inventory.

After the coronavirus pandemic, the off-price market will do very well. After the 2008 financial crisis, we saw a huge increase in off-price retail sales and this crisis is going to have a more severe impact on consumers’ income.

Craig Sundstrom
Craig Sundstrom
3 years ago

During the Great Depression, “bargain basements” helped many stores survive. Of course that was during; afterward, the economy revived and whole new ways of selling developed. But it doesn’t take much imagination to think that low cost will do well in the short term (indeed it’s hard to imagine it NOT doing well). I don’t think the (lack of) online part will matter much … at least not any more than it does already.