Strong business models
Off-price retailers such as TJX Companies (TJX), Ross Stores (ROST), and Burlington Stores (BURL) are attracting consumers through their value deals. They have strong supplier relationships and low-cost structures, which help them sell their merchandise at deep discounts. TJX Companies, for example, sources its merchandise from more than 18,000 vendors in more than 100 countries.
These off-price retailers also maintain lean inventories. That allows them to take advantage of buying opportunities that arise from order cancellations or manufacturer overruns.
Off-price retailers have performed well, even in an uncertain retail environment. TJX Companies, Ross Stores, and Burlington Stores delivered sales growth of 6.9%, 10.9%, and 8.9%, respectively, in fiscal 3Q16, which ended October 29, 2016. In contrast, major department stores such as Macy’s (M) and Kohl’s (KSS) continued to show weaknesses in their top lines, reporting 4.2% and 2.3% falls in sales, respectively, in fiscal 3Q16. Upscale department store Nordstrom (JWN), which also operates off-price Nordstrom Rack stores, had a sales growth of 6.4% in fiscal 3Q16.
TJX Companies, the largest off-price retailer, attributed its third-quarter sales growth to strong consumer traffic. It experienced strong performances in its apparel and home businesses.
Ross Stores’ impressive double-digit sales growth in fiscal 3Q16 was a result of higher traffic and a rise in the average basket size. Burlington Stores’ sales growth in fiscal 3Q16 was driven by strong performances in home, beauty, athletic and men shoes, better and moderate missy sportswear, and Baby Depot.
For fiscal 4Q16, analysts expect sales for TJX Companies, Ross Stores, and Burlington Stores to rise 5.4%, 6.4%, and 7.5%, respectively. The fourth quarter is the most crucial sales period for retailers and department stores since it includes the holiday season.
For fiscal 2016, these stores are expected to have sales growth of 7.2%, 7.3%, and 8.6%, respectively.
Next, let’s take a look at the expansion plans for these off-price retailers.