T.J. Maxx, Ross Stores, and Burlington Could Have a Happy New Year

Excess Inventory Could Help Discount Retailers

Discount retailers including T.J. Maxx (TJX), Ross Stores (ROST), and Burlington (BURL) are poised to benefit next year as retailers try to unload excess inventory. Apparel companies are expected to end the year on a strong note. After all, consumers were flush with pandemic stimulus cash and had a strong desire to spend it. That is resulting in record profits for many companies.

HBut next year could be a different story. As of October, the national personal savings rate is back to pre-pandemic levels. Mainstream retailers may be stuck with a glut of excess inventory, which they will need to unload.

Rising Prices Could Drive Sales Lower

Cotton prices and shipping costs are also increasing and consumers may not be willing to pay extra at checkout to cover these expenses in 2022. Apparel companies’ challenges could translate to gains for discount retailers. With inventory slim this year, off-price retailers have had to work hard to find products to sell. That trend is likely to reverse next year as mainstream retailers deal with inventory which got backed up in the supply chain. Some of these items will be things they no longer want to sell.

At Nike (NKE) it has taken 80 more days to get products from Asia into North America. At Gap, inventory in transit was up 16% last quarter year-over-year. Even brands which are reluctant to sell their products at discount stores normally may see this as an attractive option when faced with a glut of inventory from last season.

Off-Price Retailers Thrive Regardless of Economic Trends

Retailers like Ross Stores and T.J. Maxx tend to do well whether the economy is booming or slowing. From 2006 to 2011, a period which included the great recession, revenue at T.J. Maxx and Ross Stores increased at a combined rate of 6.7%. Meanwhile Macy’s (M), Nordstrom (JWN), and Kohl’s (KSS) saw growth of just 1.9%. Even when the economy improved from 2011 through 2019, revenue at the off-price retailers grew at a healthy clip while revenue contracted at department stores.

There are a number of unanswered questions about how the economy will hold up next year. Either way, discount retailers will likely see success.

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