- Off-priced retailers, like T.J. Maxx and Burlington Stores, are benefiting from the ongoing trade war as retailers more broadly struggle with sourcing, according to two research notes released this week by UBS Analyst Jay Sole.
- "Tariffs are likely causing significant order cancellations from many full-price retailers, potentially creating opportunities for [TJ Maxx] to buy inventory very inexpensively," Sole wrote.
- Tariffs are also being blamed for an increase in retail store closures in 2019. When these locations shutter it provides another opportunity for off-price retailers to buy up cheaper inventory. These two channels for low-priced inventory — canceled orders and store closures — were referred to as the "off-Price flywheel" by Sole who said it helped them increase their market share while raising the likelihood their competitors would close their stores.
TJX Companies CEO Ernie Herrman acknowledged this trend on the companies' most recent earnings call last month.
"[W]e are seeing phenomenal product availability across widespread categories and a range of major brands, some of which we believe is related to tariffs," Herrman said. "We are very comfortable with our in-store inventory levels and are in [a] great position to take advantage of the plentiful supply we are seeing."
Burlington Stores then-CEO Tom Kingsbury made similar points on previous earnings calls, saying "tariffs have led to and could continue to present buying opportunities for off-price" and "any disruption in the marketplace produces products for the off-price market."
Tariffs are not usually cited as the reason for closing store locations, but as the trade war rages a record number of retailers are closing up shop. Retailers have had to close about 7,300 locations in 2019, which is more than any other full year, according to numbers from BDO. Store closings like those by Avenue can mean cheap inventory for off-price clothing retailers like Marshall's or Burlington.
Discount stores like Dollar Tree and Dollar General have also been successful in avoiding the impact of tariffs, but for a different reason.
Discount stores have had to raise prices on some of their already low margin items as a result of tariffs. But retailers have framed these price increases as new offerings with Five Below testing a $5.55 price point and a $10 Below! while Dollar Tree created "Dollar Tree Plus" for more some more expensive items across 200 SKUs.