Discount stores are awash in merchandise thanks to shipping delays
Executives at discount stores including Ross, Burlington say supply-chain strains are leaving their buyers with lots of available merchandise.
A shopper at a Ross Stores Inc. discount department store in Pasadena, Calif., on June 25, 2020 – PHOTO: MARIO ANZUONI/REUTERS
The supply-chain bottlenecks that have hobbled big retailers are proving to be a boon for off-price apparel sellers.
Executives at discount stores, including Burlington Stores Inc. and Ross Stores Inc., say their buyers have been snapping up late-arriving clothing and other goods as their full-price counterparts cope with backlogs at congested U.S. ports.
Ross Stores has been “able to capitalize on the volatility in the supply chain,” including stocks of apparel held for specific selling seasons, said Ross Stores Chief Executive Barbara Rentler during the company’s March 1 earnings call.
“We see more potential opportunities in front of us from closeouts,” Ms. Rentler said. “There’s a lot of that merchandise that vendors are still moving [that] is not necessarily even in the country.”
The opportunities for bargain buys are the result of a pattern in the retail sector in which big-brand stores sell excess inventories, particularly clothing that is past its selling season, to discount chains like T.J. Maxx and Marshalls or shift the items to outlet stores at steep price reductions. During the pandemic, the rush by retailers to restock inventories has swamped major gateways like the ports of Los Angeles and Long Beach and triggered big delays in deliveries.
“Disruption creates a unique buying opportunity for off-price retailers, primarily for packaway inventory,” Bank of America analysts Lorraine Hutchinson and Melanie Nuñez wrote in a Feb. 1 research note. “As the supply chain disruptions persist, full-price retailers will need to decide whether or not to accept late orders.”
The supply-chain issues “have presented unique merchandise availability for Saks OFF 5th,” a discount retail chain owned by Hudson’s Bay Co., a spokesperson said in a statement. “Our team has a significant ability to be opportunistic in the current market and expand brand access.”
The cluster of ships waiting to unload at the Southern California ports has been shrinking this month, but delays have cropped up at other ports. Freight forwarder Flexport Inc. recently estimated it still takes more than 100 days to move a container from Asia to a U.S. destination through the West Coast, up from fewer than 50 days two years ago.
Many retailers have pulled forward orders and big merchants have chartered ships to get around the bottlenecks, and the delays threaten to leave spring merchandise in limbo.
Gap Inc. CEO Sonia Syngal said during the retailer’s March 3 earnings call that West Coast port holdups and the shutdown last year of Vietnamese factories created delays of eight to 10 weeks for its seasonal merchandise. The company declined to comment further.
Columbus, Ohio-based apparel retailer Express Inc. is packing and holding $12 million worth of inventory to sell at its outlet stores next fall because of shipping delays, interim finance chief Matthew Moellering said on the apparel chain’s earnings call last week.
The bottlenecks are also affecting the discounters’ own purchasing efforts.
Longer lead times for deliveries and an increase in in-transit goods bumped up inventories at Dublin, Calif.-based Ross Stores last quarter, Ms. Rentler said during the earnings call. Ross Stores reported a 23% increase in annual inventory, to $2.26 billion for the 12 months ending Jan. 29, up from $1.83 billion for the comparable period two years ago—before the pandemic. The company declined to comment.
Inventories at Burlington reached $1.02 billion for the year ending Jan. 29, up from $777 million two years earlier. The company, based in a New Jersey town of the same name, also reported late shipments in its fiscal fourth quarter.
“The flip side of that—the silver lining, if you like—is that shipping issues happened across the retail industry,” CEO Michael O’Sullivan said during the discount chain’s March 3 earnings call. Those problems, he said, have created “a really strong buying environment for off-price.”
Burlington’s buyers have gotten “some really terrific buying opportunities” in recent months, including for fall merchandise the retailer will pack away for later this year, he said. The company didn’t respond to requests for comment.
The struggle to restock from low inventory levels early in the pandemic appears to be gaining ground. The ratio of retailers’ inventories to sales has been creeping up recently, suggesting that stockpiles are growing. But the measure remains at historically low levels.
That isn’t dampening the discounters’ outlook for more goods flowing into their supply chains.
“Importantly, and I can’t emphasize this enough, availability of quality branded merchandise is excellent across good, better, and best brands.” Ernie Herrman, CEO of TJ Maxx owner TJX Inc., said during the retailer’s Feb. 23 earnings call. TJX declined to comment further.
Write to Lydia O’Neal at lydia.oneal@wsj.com