Earnings   //   November 22, 2023  ■  4 min read

Off-price retailers are poised to be big holiday sales winners

As one of the busiest shopping seasons rolls around, people are increasingly heading over to off-price retailers like TJX, Ross and Burlington.

Several off-pricers noted an increase in comp sales driven by higher customer traffic. Burlington’s comp store sales grew 6% in the third quarter and its revenue total sales were up 12% to $2.29 billion. Ross Stores saw a 5% growth in comp store sales this quarter, while TJX — which owns retailers like T.J. Maxx, HomeGoods and Marshalls — had a 6% overall comp sales increase. 

Retail giants like Target and Walmart have been predicting a slow holiday shopping season this year as people remain cautious about spending. Although inflation has begun to go down from record levels last year, interest rates are still rising — which is impacting people’s willingness to spend on discretionary items at full price. The average rate on 30-year home loans climbed to 8.01% just a few weeks ago — the highest its been since 2000, a report from financial services company Bankrate indicates.

But off-price retailers, known for their value-based offerings, have managed to curb some of the challenges plaguing the industry. This past quarter proved shoppers’ demand for value when off-pricers collectively reported strong sales that blew past their personal expectations.

Much like Burlington, Ross and TJX have also reported healthy sales growth. Ross’ total sales climbed to $4.9 billion this quarter from $4.6 billion last year. TJX’s net sales, on the other hand, were up 9% in the third quarter to $13.3 billion. 

“We are pleased that both sales and earnings outperformed our expectations as customers responded favorably to the terrific values we offered throughout our stores,” Ross CEO Barbara Rentler said in a recent call with investors and analysts. 

During times of economic uncertainty, off-pricers typically benefit from shoppers’ value-seeking behaviors. This dynamic could very likely play out this holiday season. TJX said during its earnings call that it is expecting a robust holiday shopping season as people search for deals. Meanwhile, Burlington said that it has been getting traffic from trade-down customers. 

“Our expectation coming into this year was that the economy would slow down… and therefore we see more trade down traffic in our stores, and that has happened,” Burlington CEO Michael O’Sullivan said in an earnings call. “As we look forward to 2024, we think it’s possible that we’ll see more of that trade down. If that happens, I think we’re in very good shape to take advantage of it.”

R.J. Hottovy, head of analytical research at Placer.ai, said that even though inflation has cooled down in recent months, value-seeking behaviors remain prevalent. 

“This is one of the most popular channels right now,” Hottovy said. “Seeing the macro pressures, there are a lot of consumers focusing on value, and it makes sense that they’re gravitating towards off-price retail.” 

Throughout the year, the three off-pricers have been growing their store count to accommodate the growth. Burlington planned to open 70 to 80 new stores this year, with the goal of opening 500 to 600 stores in five years. Ross said it plans to open 100 new stores, while T.J. Maxx planned 150 new stores this year.

“The middle- to lower-income consumers are very much focused on stretching the household budget and getting the best deals possible,” Hottovy said. “It’s more than that too. I think that a lot of the [off-price retailers] have done a good job in terms of merchandising and bringing new products.”

Additionally, the inventory glut that impacted full-priced retailers in 2022 and 2023 benefitted off-pricers who buy unsold or excess inventory. Off-pricers likely had a larger and better selection of merchandise when retailers attempted to liquidate unwanted items.   

 TJX said that it is “convinced” that its T.J. Maxx and Marshalls locations will be gifting destinations this holiday shopping season. It also raised its fiscal year guidance for the third time this year. It now projects comp sales to grow 4% to 5%, up from its previous 3% to 4% guidance. Like most retailers, the holiday shopping season is one of the most important times of the year for off-pricers who want to win over shoppers hunting for deals.

Although Burlington said it was pleased with its comp sales, the unexpectedly warm weather in October did soften its comps. As the weather gets colder, the company said its outerwear business is expected to reap the benefits. Cold-weather products like outerwear currently represent around 25% of Burlington’s business.

Meanwhile, Ross said that it is confident with the off-price sector’s resilience despite the challenges in the industry. Ross maintained a cautious approach to forecasting the fourth quarter. The company continues to expect same-store sales to grow 1% to 2%.

“[Off-pricers] are really setting up for a strong fourth quarter with the amount of visitation we saw in the third quarter and into November already,” “It’s going to end up in one of the top performing categories for the holiday season, both because of where consumers are at from a macro perspective but also [because] they’ve done a really good job merchandising products.”