Will Off-Price Retailers Sink or Swim in the Post-COVID World?

shirts in a closetSince the COVID-19 lockdowns began, retailers have faced a mounting problem regarding excess inventory. Massive piles of clothes continue to grow at retailers’ stores, distribution centers, warehouses, and shipping containers.

However, as retailers reopen to the public, they are in desperate need to offload this excess inventory.

Some retailers have even looked to rent additional space to temporarily hold all of their unsold merchandise.

Real estate company Knight Frank reported that they received inquiries from retailers requesting over 6 million square feet of short-term let warehouse space in Britain since the lockdowns began in March.

What Will Retailers Do With the Extras?

Historically, when retailers have a surplus of inventory their options are to keep it in storage, hold a sale, or sell the clothes to off-price retailers like TJ Maxx, Marshalls, Burlington Coat Factory, and Big Lots which resell the goods at a discounted price.

Unfortunately, storing piles of inventory for an extended period of time can be quite risky. According to Emanuel Chirico, chief executive of PVH Corp, which owns Calvin Klein and Tommy Hilfiger, “This is not like wine that gets better with age. Your inventory gets worse.”

With so many clothes in storage going out of style and out of season and huge amounts of merchandise for holiday, wedding and graduation celebrations losing value in storage, many retailers will attempt to move these items out of storage as quickly as possible by holding sales and selling them to off-price retailers.

How Will Off-pricers Fare?

Before the COVID-19 pandemic, off-price retail stores were seeing rapid growth. Many reported an increase in same-store sales and plans to expand their brick-and-mortar locations. During this time, off-price retailers were greatly outperforming department stores and apparel retailers.

According to Chris Weilminster, executive vice president and COO of Urban Edge, a REIT focused on urban retail properties, off-price chains were “riding the wave of the strength in the economy.”

But, off-price retailers have felt the same pain as traditional retailers during the COVID-19 lockdowns, relying solely on online sales in many states to keep their businesses afloat.

While the COVID-19 pandemic has halted off-price retailers’ momentum in the short-term, it may have only strengthened their position for long-term growth. Economic volatility and widespread unemployment have limited consumer spending. With smaller shopping budgets, consumers have put an even larger focus on discounts than before the lockdowns.

At its core, the off-price retail model is to provide over-produced items at discount prices. In the current economic downturn, consumers are prioritizing low prices more than ever. And with all of the inventory full-line retailers are looking to offload, this aligns perfectly with off-price chains’ strategy to buy up excess inventory and sell it at cost-friendly prices.

In addition to the spike in inventory, the widespread closures of many full-line retail stores has benefitted off-price retailers. According to global marketing research firm Coresight Research, over 4,000 stores have permanently closed. And as many as 25,000 could close by the end of the year. This would give off-price retailers an even greater brick and mortar market share and less competition from full-line retailers.

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