By Aishwarya Venugopal and Savyata Mishra
(Reuters) – Aggressive tariffs on China-made clothes, bags and shoes by U.S. President Donald Trump could benefit off-price retailers such as TJ Maxx and Ross who rely on expansive sourcing strategies and inventory management.
TJ Maxx-owner TJX Cos, Ross Stores and Burlington Stores often acquire clothing, accessories and other merchandise from U.S. middlemen — not always importing from factories overseas directly.
This will allow them to largely sidestep any direct hit from the new China tariffs in the near term, investors and analysts said.
“They’re just buying unsold inventory from other places,” said Brian Mulberry, client-portfolio manager at Zacks Investment Management, referring to the typical off-price business model of buying from department stores and clothing and footwear manufacturers.
“Those tariffs,” Mulberry said, “would have already been paid” by the retailer who had imported the clothing or shoes from China, he said.
To be sure, off-price retailers will face tariffs on some imports.
Overall, TJX had bought products from 21,000 plus vendors spread across more than 100 countries, according to its filing for the year ended February 1. Typically less than 10% of the merchandise the retailer purchases for its U.S. businesses are directly imported from China.
TJX and Ross recently provided cautious annual sales and profit amid uncertainty from the tariffs.
Off-price stores are also nimble in what they buy, opportunistically snapping up anything that looks like a good deal.
“There’s more availability out there over the next six months, even more than there’s been, which is going to create more buying opportunities for our teams,” TJX CEO Ernie Herrman said on a post-earnings call in February.
BARGAIN PULL
Off-price retailers are also poised to draw more shoppers seeking out bargains amid higher clothing and shoe prices. The chains typically offer discounts of between 20% and 60% as they tend to acquire low-priced merchandise that is “off-season” from manufacturers and retailers.
“The resounding sentiment from the off-price [executives’] C-suites is that the sector is well-positioned to take advantage of any dislocation in the market due to the nature of the business model,” Jefferies analyst Corey Tarlowe said.
Last week, Trump imposed new tariffs on key sportswear and apparel production hubs including Vietnam and Indonesia.
On Wednesday, in a stunning reversal, he paused most of the hefty duties and increased tariffs on Chinese imports to 125%.
The sector is also set to benefit from Trump curtailing “de minimis”, or the exemption that allowed duty-free imports of $800 or less, which was used by several retailers including China’s Shein, PDD Holdings-owned Temu and Alibaba’s AliExpress.
This could push shoppers to off-price stores for alternatives for the cheap, typically fast-fashion products.
STOCKING RIGHT
Off-price retailers also tend to keep lean inventory levels, contrasting with traditional retailers’ practice of ordering most of their goods far in advance before they appear on the selling floor.
Average inventory days, or the number of days taken for the stock to be sold for TJX and Burlington, decreased since 2023 during the three-month period from December to February, data from LSEG IBES showed, indicating faster movement of products.
In comparison, the number of days taken for the stock to be sold for Kohl’s and Macy’s has mostly increased during the same period, according to the data.
LSEG, the financial news and data platform, calculated the average inventory days for the retailers by dividing each company’s average inventory by the cost of goods sold during the three-month period, an indicator of inventory management efficiency.
“In this sort of off-price industry that we’re in, we tend to benefit from dislocation of the overarching retail market,” Ross Stores CEO James Conroy said during the company’s March 4 conference call.
Shopper traffic in March at TJX Cos, Ross and Burlington Stores were up 7%, 4%, and 9%, respectively, according to data firm Placer.ai. The data analytics firm measures traffic by analyzing visit trends, trade areas and demographics among others.
In contrast, shopper visits to Nike stores dropped 10% in March, compared to the same period a year earlier. They were down marginally at Kohl’s and rose 2.8% at Macy’s, but smaller than at the start of the year in January, according to Placer.ai.
(Reporting by Aishwarya Venugopal and Savyata Mishra in Bengaluru; Editing by Sriraj Kalluvila)
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