It’s a great time to be a clearance store like TJ Maxx.
Traditional brands and retailers are overloaded with clothing, home goods, electronics and other merchandise. In July, they were sitting on $713 billion in inventory, according to the latest Census Bureau data.
These chains have flexible purchasing models and are able to pick up unwanted goods from vendors at deep discounts from their original wholesale price.
Unlike brands and stores that lock in inventory six months to a year in advance, TJX and other discount chains buy excess merchandise to resell immediately. They also capitalize on orders that have been canceled or when companies produce too many items.
And if a designer changes the style or color of a dress, for example, discount stores will be happy to take it and sell it at a low price.
If the price is right, these companies will also buy goods and store them for future seasons – a practice known as packaway.
By buying bargains and controlling costs with limited advertising budgets, off-price stores can sell designer names and mid-priced brands between 20% and 60% below regular retailer prices.
Companies and analysts say the current retail inventory hoard is the ideal environment for off-price chains.
(TGT) and other businesses exploded a year ago. “We actually have a few seasons coming to market at the same time,” Nike said.
(NKE) CEO John Donahoe said in a call with analysts last month.
Factory closures last year and in 2020 have delayed shipments, as have widespread container ship shortages and supply chain backlogs. Inflation also pinched shoppers’ pockets, causing them to forgo discretionary items.
Companies are now aggressively reducing excess merchandise to stimulate customer demand. They also package some merchandise to try to sell it in future seasons, diverting more merchandise to their own factory outlets and canceling orders from suppliers.
But these strategies alone will not eliminate the glut. And the beneficiaries of this deluge will be the off-price chains.
“It’s all going to flow into them,” said Brett Rose, CEO of wholesale distributor United National Consumer Suppliers, which works with stores and brands. Rose’s company is shipping 40% more volume to off-price chains compared to the same period a year ago.
“We are seeing extraordinary off-price buying opportunities in the market,” TJX CEO Ernie Herrman said in August.
Ollie’s Bargain Outlet, a clearance chain with more than 400 stores offering housewares, flooring and outdoor items, is finding “opportunities the likes of which we haven’t seen in a long time,” said CEO John Swygert last month.
“Cancelled orders, excess inventory and supply chain disruptions have led to the availability of a wide assortment of products,” he said.