How Supply Chain Challenges Set Up Off-Price Stores For Wins in 2022

Massive supply chain slowdowns hindered the businesses of several major retailers and brands in 2021. Meanwhile, the off-price sector has picked up major wins.

Discount stores saw strong results throughout 2021. TJX Companies Inc., which owns Marshalls, T.J. Maxx, and Home Goods, reported net sales in Q3 of $12.5 billion, marking a year-over-year increase of 24%. Ross Stores, Inc. reported that Q3 sales were up 19% year over year to $4.6 billion.

As the new year kicks off, these chains will likely continue to benefit from the port congestion, factory shutdowns and labor shortages that prevented many retailers from receiving inventory in time for various shopping events. As a result, many of these companies cancelled their orders, leaving containers up for grabs for off-price chains that rely on overstocks and cancellations to make up the bulk of their inventory.

“There’s no shortage of goods right now in the market for a Marshalls, Ross, Five Below, and Dollar Tree — the off-price sector,” Brett Rose, CEO of United National Consumer Suppliers, told Footwear News in an interview.

Rose, whose company sources products to several off-price retailers including Ross Stores and some TJX-owned stores, explained how most off-price stores tend to have a wide network of “nontraditional suppliers” as opposed to relying on suppliers in Asia and the Far East. Many failings in the U.S. supply chain in 2021 were a result of a heavy reliance on labor and sourcing from China, Malaysia and Vietnam.

“If all of a sudden there are delays in China, [off-price stores] will find a U.S. manufacturer, a Canadian manufacturer, an Indonesian manufacturer,” Rose said. “They’re more globally sourced than Far East Asia. And I think that’s where a lot of traditional retailers got stuck with the supply chain challenge.”

Additionally, off-price stores have the ability to buy up cancelled containers from retailers that can no longer use delayed items due to seasonality.

While off-price stores will not be challenged when it comes to inventory, they will not be immune to inflationary pressures across retail. As such, Rose said to expect to see price increases across the off-price sector due to high shipping and transporting costs.

In many cases, these price changes have already taken effect. Dollar Tree recently said that all prices will now start at $1.25 instead of the $1.00 price point which has defined the chain for decades.

But even with higher prices, discount chains will still offer value. In a 2022 outlook from Guggenheim, analysts said they are watching the off-price sector, particularly TJX Companies, which has “demonstrated pricing power” amid cost increases and an ability to maintain strong profit margins.

At the same time, these stores offer shoppers the delight of stumbling across products they never knew they wanted.

“When you are walking in off-price retailers, it’s a treasure hunt,” Rose said. “And the off price guys have done a pretty good job at keeping and maintaining that balance.”

This “treasure hunt” experience is crucial to the success of the off-price sector. It’s also intrinsically tied to brick-and-mortar stores and therefore difficult to imitate online.

“Ultimately, there’s nothing like her walking in the store and seeing that thing that she didn’t know she wanted and buying it,” Rose said. “That’s the off-price success.”

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