Chaos in the supply chain stifles TJMaxx deals

These discount chains thrive when there is an abundance of clothing on the market. They can scoop in and buy premium clothing and shoe brands’ excess inventory for cheap money – and then sell it to customers at cheap prices. The problem right now: There is very little unsold clothing sitting around.
Supply chains are suffocated, and brands do not have much, if any, extra stuff to dump. And since stocks are meager and customer demand is red-hot, brands do not have such a great need to discount merchandise – they can easily sell goods at full price.
Under armor (UA), Ralph Lauren (RL), Carters (SHOUT) and Steve Madden (SHOO) is among the brands that in recent weeks have said they are withdrawing from discount chains, sometimes called “discount stores”. Levi’s (LEVI) is also moving away from discount stores.
Even before the pandemic, these brands tried to move away from low-cost carriers because they are the least profitable brand outlets. Offering too many products at a discount also dilutes the image of the brands and erodes their pricing power towards customers. These brands want to sell their stuff through their stores, websites, premium wholesale partners or their factory outlets, all of which are more profitable.

“Off-price is a last resort,” said Susan Anderson, retail analyst at B. Riley Securities. She said discount stores may suffer in the long run if brands keep their inventories tighter.

Clothing and footwear brands have stepped up their efforts during the pandemic to pull away from discount stores. They are able to cope with it right now due to the huge imbalance between supply and demand.

“We have reduced the amount we sell to the third-party off-price channel,” Under Armor CFO David Bergman said in a earnings call this month. “These partners want more product.”

When Under Armor sells to discount chains, “they’re going to pay us a little bit more,” because Under Armor has fewer products to ship, Bergman said.

Carter’s sends fewer of its baby items to TJ Maxx (TJX), Marshalls, Burlington (BURL) and Ross (FEELING) this year. Compared to 2019, Carter’s has reduced its sales to discount stores by nearly 50%, CEO Michael Casey said in a earnings call last month.

Instead of delivering to discount chains, Carter’s will rely on its own stores and websites when they have excess inventory to unload – or it will hold on to products and sell them for another season, a spokesman said in an email. Carter’s is also cutting back on the number of different products it sells overall, leaving less room for discount stores to indulge.

Christmas will be great for stores if their names are Walmart or Target

Ralph Lauren has “significantly reduced” the amount of inventory it sends to discount chains, including TJ Maxx, a spokesman said in an email. Ralph Lauren in particular has withdrawn on the amount of products it makes specifically for TJ Maxx.

Steve Madden is also calling back to empty the inventory for discount stores because it has to allocate its limited supply of goods.

“Our first priority is always to feed full-price channels,” CEO Edward Rosenfeld said in a earnings call this month.

TJ Maxx says not to worry: Stores will be “frequently updated with new and trendy items”, and customers will be able to find a strong selection of gifts and home decor during the holiday season from their “ever-changing mix of items, said a spokesman for the company in an email. Burlington declined to comment. Ross Stores did not respond to requests for comment.

Still, “quantities of seasonal goods look lower than normal” at discount chains, especially at Ross and Burlington, UBS retail analyst Jay Sole said in a Nov. 8 research note. Top-brand sportswear was less accessible than usual, he noted.

Off-price chain shares have followed the S&P 500’s retail index, which has risen 18% in 2021. TJ Maxx’s parent company TJX’s share is flat this year, Burlington has risen 2% and Ross has fallen 6%

There are fewer items in some companies’ own outlet stores, such as the outdoor equipment retailer REI.

REI is experiencing strong demand for outdoor goods, so there is “very little product leftover” to sell in its outlet stores, Ben Johns, REI’s general merchandising manager for action sports, told CNN Business.

Historically, half of REI’s bicycle shop – bicycles, helmets, clothing, spare parts and maintenance products for cycling, car racks – come from sale at full price. This year it has risen over 90%.

Johns said, “What we have, we simply sell at full price.”

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