With continued consumer demand for value merchandise unabated and relative financial strength among major companies, few doubted that off-price retailers would make a rapid comeback from closures related to the COVID-19 pandemic. But that doesn’t mean they don’t face challenges as supply chain disruptions create short-term headaches and online retail looms as a greater potential threat down the line.
Discount chains have lately admitted they’ve had to shift assortments and incur more costs to deal with supply chain issues. In recent conference calls and other public statements, most off-price retailing leaders have expressed confidence they will be able to serve customers effectively this holiday season. Even so, while they may find merchandise to offer, can they find enough of the merchandise consumers want?
T.J. Maxx said not to worry, stores will be “frequently updated with new and on-trend items.”
Global supply chain issues are affecting designer brands like Under Armour, Ralph Lauren, levis, and more leaving bargain hunters at a loss.
The companies said they are stepping away from those discount chains like T.J. Maxx, Burlington, and Ross, who carry the excess of premium apparel and shoes for lower prices.
According to some designer brands, discount stores are the least profitable outlet and they dilute their image. These brands were already moving away from the chains before the pandemic.
While reduced manufacturing and general pullback from the discount sector are creating the potential for major product shortages in the off-price arena, TJ Maxx’s “superior buying expertise and the very strong industry connections of its buyers will help it mitigate some of these challenges compared to rivals,” said Neil Saunders, managing director of GlobalData.
He added that supply chain disruptions create an opportunity for TJ Maxx to acquire and sell products meant for earlier seasons that brands can no longer use in stores.
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Instead of working with TJ Maxx and similar retailers, these brands would prefer to sell their items at premium outlets or online directly to the consumer. They’re able to accumulate a lot more money from buyers this way rather than giving their extra supply to TJ Maxx and Ross at a discount that then gets passed on to the customers of those stores.
The pandemic has thrown off the balance between supply and demand. Because people are eager to get their hands on products, but it is very difficult for companies to make large amounts of items – there are more people looking to buy than there are items available to sell. This means that companies are not stuck with a lot of products at the end of the quarter that they need to offload to retailers like TJ Maxx. By distancing themselves from these “off-price” stores, brands are able to make more money and get their goods to consumers who are willing to pay a premium for them.
“We have reduced the amount that we’re selling to the third-party off-price channel,” Under Armor chief financial officer David Bergman said on an earnings call this month. “Those partners would like more product.”
Bergman said that while Under Armor might still sell some of their extra stock to “off-price” retailers, these companies are “going to pay a little more to us” because Under Armor simply does not have as much stock available in their warehouses. They’re selling their clothing to consumers and are not stuck with leftovers.
“Our first priority is always feeding full-price channels,” Steve Madden CEO Edward Rosenfeld said on an earnings call this month.
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