Chaos in the supply chain stifles TJ Maxx deals

These low-cost chains thrive when there is an abundance of clothes 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 favorable prices. The problem right now: There are very few unsold clothes sitting around.

Supply chains are suffocated and brands do not have much, if any, extra stuff to dump. And since inventory is meager and customer demand is red-hot, brands do not have an equal need to discount goods – they can easily sell goods at full price.

Under Armor (UA), Ralph Lauren (RL), Carters (REVEAL) and Steve Madden (SHOO) is among the brands that in recent weeks have said they are withdrawing from discount chains, sometimes called “off-price” stores. Levi’s (LEVI) also goes 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 brands’ image and erodes their pricing power to 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, a retail analyst at B. Riley Securities. She said discount stores can suffer in the long run if brands keep inventory tighter.

Clothing and footwear brands have increased their efforts during the pandemic to withdraw from discount stores. They are able to do it right now because of the huge imbalance between supply and demand.

“We’ve reduced the amount we sell to third-party off-price channels,” said Under Armour’s CFO David Bergman at a revenue call this month. “These partners want more product.”

When Under Armor sells to discount chains, “they will pay a little more to us” because Under Armor has less product to ship, Bergman said.

Instead of delivering to discount chains, Carter 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 in another season, a spokesman said in an email. Carter’s also cuts down on the number of different products they sell in total, leaving less room for discount stores to throw themselves over.

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

Steve Madden also calls back on unloading inventory to off-price stores because it has to allocate its limited supply of goods.

“Our first priority is always to provide full price channels,” CEO Edward Rosenfeld said at a earnings interview 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 holidays from their “ever-changing mix of items,” 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 November 8 research note. Top-brand sportswear was less available than usual, he noted.

The shares of chains in low-price chains have followed the S&P 500’s retail index, which has increased by 18% in 2021. TJ Maxx’s mother TJX’s share is flat this year, Burlington has risen 2%, and Ross has fallen 6%

Goods are scarcer in some companies’ own outlet stores, such as the outdoor equipment retailer REI.

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

Historically, half of REI’s bicycle business – bicycles, helmets, clothing, parts and maintenance products for cycling, car racks – comes from full-price sales. This year it has risen over 90%.

Johns said: “We only sell what we have at full price.”