How TJ Maxx and Ross discount their clothes so much

New York
CNN Business
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It’s a great time to be as close a shop as TJ Maxx.

Traditional brands and retailers are brimming with clothing, household goods, electronics, and other merchandise. In July, they had $713 billion in inventory, according to the latest data from the Census Bureau.

This is an excellent opportunity for “out-of-price” retailers such as TJX (TJX) – the parent company of TJ Maxx, Marshalls and HomeGoods – as well as Ross (ROST), Burlington (BURL) and Ollie’s Bargain Outlet (OLLI).

These chains have flexible purchasing models and are able to collect unwanted merchandise from suppliers at deep discounts on initial wholesale prices.

Unlike brands and stores that lock up their inventory from six months to a year in advance, TJX and other off-price chains buy surplus merchandise to sell immediately. They also benefit from canceled orders or when companies manufacture too many items.

And if the designer changes the style or color of the dress, for example, non-price stores are happy to take it and sell it cheaply.

If the price is right, these companies will also buy some of the merchandise and store it away for future seasons – a practice known as Packaway.

By purchasing inexpensive items and controlling costs with limited advertising budgets, non-price stores can sell designer names and mid-range brands anywhere from 20% to 60% below the prices of regular retailers.

Companies and analysts say the buildup of existing inventory via retail is the ideal environment for non-price chains.

Stocks of Nike (NKE), Gap (GPS), Kohl’s (KSS), Target (TGT) and others have ballooned since a year ago. “We actually have a few seasons going down in the market at the same time,” John Donahoe, CEO of Nike Corporation (NKE) said on a call with analysts last month.

Factory shutdowns last year and into 2020 have delayed shipments, as have widespread shortages of container ships and a backlog of supply chains. Inflation has also squeezed the pockets of shoppers, forcing them to pass on discretionary items.

Firms are now aggressively discounting their excess merchandise to stimulate customer demand. They are also packing some merchandise to try to sell in future seasons, shifting more merchandise to their outlet stores and canceling orders from suppliers.

But these strategies will not be enough to remove the glut. The beneficiaries of this deluge will be inexpensive chains.

“All of this is going to get the water flowing into her,” said Brett Rose, CEO of wholesale distributor United National Consumer Suppliers, which works with stores and brands. Rose is shipping 40% more volume to non-price chains compared to the same time last year.

“We are seeing extraordinary off-price buying opportunities in the market,” TJX CEO Ernie Hermann said in August.

CEO John Swygert said last month that the Ollie Bargain Outlet chain, which has more than 400 stores offering homeware, flooring and outdoor goods, is finding “opportunities we haven’t seen in a long time.”

“Cancellations, excess inventory and supply chain disruptions have resulted in a wide range of products available,” he said.

Originally published at San Jose News Bulletin