TJ Maxx, Marshalls Enjoying ‘Phenomenal’ Perks Thanks to Tariffs — But Off-Price Retailers Are Not in the Clear Yet

In an already-challenging retail environment, the specter of the U.S-China trade war has loomed large over the industry for more than a year, threatening price increases and sourcing obstacles.

One sector that’s seemed largely shielded from these difficulties, though, is off-price, as chains like T.J. Maxx, Marshalls and Ross have posted quarter after quarter of rising sales and traffic gains. Moreover, these retailers are far less reliant on Chinese imports than most of their full-price peers, and far more flexible in terms of where they source their products.

Analysts and industry experts have warned that the category could still face pricing pressure as a result of the tariffs that President Donald Trump has promised will take effect Sept. 1 and Dec. 15, however, and in reporting second quarter earnings this week, TJX Cos. (parent to T.J. Maxx, Marshalls and Home Goods) and Ross Stores acknowledged some uncertainty around their possible impact on margins.

The new round of 10% tariffs covers $300 billion in Chinese goods, including footwear, apparel and other consumer products. According to the Footwear Distributors and Retailers of America, 70% of all footwear sold in the U.S. is imported from China, and the category already faces duties as high as 67%.

On Thursday, Ross Stores trimmed its full-year earnings guidance and said its operating margin would decline in the coming quarter, citing the potential tariff impact on merchandise gross margin. It has already been dealing with the effects of an earlier round of tariffs on categories like cosmetics and home that was raised from 10% to 25% in June, which it has been “able to mitigate… with tightening our belts on cost,” CFO Michael Hartshorn said on the call.

Executives were reluctant to give any decisive predictions about how the industry will handle the possible cost increases, though. “In the near term, I think what we have to do is recognize that we’re not the leader in all of this. We’re the follower,” said Ross Stores CEO Barbara Rentler. “So we’re going to have to wait and see how retailers react to the higher costs, their approach on pricing, and then really the customer’s reaction to potential price inflation.”

TJX CEO Ernie Herrman was more upbeat on a call with investors and analysts on Tuesday, calling out the “tremendous buying opportunities” the company is seeing as a result of full-price retailers and brands stocking up on excess inventory in anticipation of potential tariffs.

“We are seeing phenomenal product availability across widespread categories and a range of major brands, some of which we believe is related to tariffs,” said Herrman. “We are very comfortable with our in-store inventory levels and are in great position to take advantage of the plentiful supply we are seeing.” TJX sources from over 21,000 vendors around the world, a network that has nearly doubled in the past decade.

Still, uncertainty alone has wreaked havoc on much of the industry, throwing a wrench into planning and forecasting capabilities as Trump has advanced on and then backed off of tariff threats.

In recent years, improvements in forecasting systems have made full-price brands and retailers better at predicting the amount of inventory they’ll need for any given season, says Paula Rosenblum, co-founder and managing partner at the market intelligence firm RSR Research. “What happens here is people are placing bets because there’s so much uncertainty. All of a sudden it’s back to the way it was 10 or 15 years ago.”

On the one hand, this is a boon to off-price retailers, giving them more buying leverage and a better selection of products. But if their vendors are forced to raise prices due to tariffs, they will likely have to do the same, even if it’s to a lesser extent.

Plus, adds Rosenblum, off-price chains are also managing this uncertainty in their own planning. “They have to figure out how much do they want to bring in, how much of their own private label do they want to make… especially because, with the improvement in forecast engines, they’ve had to turn to more private label than they had before.”

While TJX and Ross don’t break out the share of their products sourced abroad, Burlington, a much smaller competitor, has said that direct imports comprise just 6% of its inventory.

While TJX added a small negative tariff impact to its full-year guidance for merchandise it has already committed to, Herrman said it only directly imports a “tiny amount” of goods itself. Because the bulk of its products are excess inventory, he said, it is in the “position to be able to moderate any risk and not even have to make retailing decisions until we see what happens around us.”

Still, said CFO Scott Goldenberg, “It remains difficult for us to forecast the impact, if any, and the extent to which we could mitigate it. It remains to be seen what happens with vendor and competitor pricing, consumer demand, potential tariff pass-throughs and the fluctuation of the Chinese currency.”

According to a report released Thursday by the financial services company Hilco Global, off-price retailers are still likely to face pricing pressure, albeit to a lesser extent than their full-price counterparts. (Kohl’s, for instance, would be forced to raise prices 2.7%, compared with 1.5% at TJX Cos., it said.)

Analyst views on the outcomes for the sector are mixed. According to Marketplace, UBS analysts maintained their sell rating for TJX Cos. following its most recent earnings, writing, “we think tariffs [will]have a big impact” on the company’s upcoming performance.

Cowen analyst John Kernan took a more upbeat view, however, writing, “We maintain our view that the leading off-price retailers are best positioned to weather tariff uncertainty but are mindful that emerging channels such as resale represent additional competition in addition to existing online pure-play.”

“Historically, disruptions like this have benefited off-price,” Rentler said on the call, promising that, “As always, our focus will continue to be offering our customers the most compelling values possible throughout our stores.”

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