Off-Price Sector Likely to Remain Stable As Target and Walmart Flounder From Inflation-Stricken Consumers

As consumers struggle with higher prices across multiple categories, the off-price sector is faring better than some traditional retailers.

In the last few days, big-box retailers Target and Walmart reported earnings misses, largely due to a decrease in spending in discretionary categories as consumers absorbed hefty price increases across essential items like food. On the other hand, discount retailers like TJX Companies appear to be in a position to gain from value-driven consumers.

TJX Companies, parent to Marshalls, T.J. Maxx, and Home Goods, reported upbeat quarterly results, with earnings per share of $0.68 ahead of estimates of $0.6. Net sales were $11.4 billion, up 13%. However, U.S. comp store sales were flat compared to last year’s 17% increase.

Shares of TJX were up over 8% on Wednesday afternoon.

The results, while not spectacular, represent a strong outcome during a quarter characterized by high costs and inflation.

Consumer prices rose by 8.3% in April compared to a year ago, according to the Bureau of Labor Statistics’ monthly report. Specifically, the food index rose 9.4%, marking the largest 12-month increase since the period ending April 1981. Across retail, results in Q1 reflected these trends, with consumers being more deliberate in their spending.

“There has also been some customer switching into the off-price channel as consumers react to inflation and higher prices,” said managing director of GlobalData Neil Saunders in a statement. “As positive as both these things are, they are somewhat offset by a conservative consumer who is more cautious about spending money as other costs increase.”

Analysts from Jane Hali & Associates (JHA) LLC noted that this consumer reacting to inflation will likely benefit other off-price players as well, such as Ross Stores and Burlington Coat Factory.

“As prices increase, off-price is positioned to benefit from inflation as consumers look for bargains,” JHA analysts said in note.

At the same time, Saunders noted that the off-price channel will likely face increasing competition from resale platforms that continue to gain momentum. The U.S. secondhand market is expected to more than double by 2026, hitting $82 billion, according to a recent report from ThredUp and GlobalData. Overall, resale is expected to grow 16x faster than the retail clothing sector in the U.S. by 2026.

In the report, ThredUp cited a GlobalData pulse survey of 2,000 U.S. adults conducted in April that found that 44% of consumers said they were cutting back on apparel purchases. 80% of consumers said that they are buying the same amount or more secondhand apparel items and 25% said they would consider buying even more apparel items secondhand if prices keep rising.

“Consumers now have far more value channels to turn to during times of financial pressure – including secondhand and resale and ultra-cheap players like Shein,” Saunders said. “TJX will still gain apparel market share, but it will need to share the gains with a wider pool of competitors.”

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