Entering text into the input field will update the search result below

Off-Price Retailers: No E-Commerce, No Problem

Aug. 04, 2020 6:36 PM ETBURL, ROST, TJX6 Comments
Riyado Sofian profile picture
Riyado Sofian


  • The off-price retail model depends almost entirely on foot traffic — the impact from online sales is negligible.
  • Near term pricing pressure is expected as retailers sell lockdown inventories at a steep discount.
  • Key opportunities lie in fashion brands, department stores and suppliers liquidating out-of-season merchandise to off-price retailers, at bargain-basement prices.
  • Off-price retailers will come out a winner during the pandemic, and I believe ROST has the most upside potential at current prices.

Investment Thesis

Off-price retailers generate the bulk of their total sales from brick-and-mortar stores, a negative for the public during this pandemic. However, the markets are missing the opportunities that off-price retailers will have in the near future - particularly with other retailers and suppliers liquidating their out-of-season merchandise to off-price retailers, at rock-bottom prices. Their main value propositions of offering customers low prices and a treasure-hunt shopping experience, combined with strong company fundamentals and financial stability during recessions, make off-price retailer stocks a great addition to a long-term investor's portfolio.

E-Commerce Is Not An Option

Earlier this year, retailers across the U.S. (and the globe) faced unprecedented challenges as the pandemic spreads, forcing states to mandate store closures for non-essential businesses. Unfortunately, off-price retailers belong to this group of non-essentials. While they enjoyed lower electricity bills, off-price retailers generated near-zero revenue during the period when stores were closed, due to their lack of online presence. Ross Stores (ROST) and Burlington (BURL) have a purely bricks-and-mortar business model, while T.J. Maxx (TJX) had launched its e-commerce line in prior years. As a result, ROST and BURL are down more than TJX, year-to-date. The S&P Retail ETF (XRT), however, is up 4% as of this writing.

(Source: TradingView)

The markets have such a negative sentiment on off-price retailers because of their heavy reliance on brick-and-mortar play. Even though TJX has its own e-commerce operations, its online sales only make up a minuscule portion of total sales. In 2019, TJX's online sales account for only 2% of total sales. BURL had also launched its own online store but decided to shut it down due to underperformance — e-commerce only accounted for 0.5% of sales in 2019. ROST's and BURL's lack of online presence explains why their stocks are down more compared to TJX. In addition to e-commerce, TJX

This article was written by

Riyado Sofian profile picture
My goal is to help you find the companies of tomorrow.I am a long-term growth investor in search of innovative companies that make the world a better place. My investment strategy revolves around finding what I call "divergent stocks" — disruptive companies that have strong fundamentals and long growth runways, but depressing prices.You can find me on YouTube as well:https://www.youtube.com/@riyadosofian

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ROST over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (6)

I have been selling to Marshall's since they were owned be the Marshall family and had 4 stores. I helped set up the first Home Goods Stores in Milford, MA. I have been selling to ROST stores, since 1998, when they had one person, Shelley Alves, in imports, one person..

Yes, they have the treasure hunt mentality and have very different than traditional dept stores, they want you to buy it when you are in the store, for fear it won't be there next week. And they absolutely believe in fast nickels and not slow dimes. But get real if you have even 5 stores, you need to keep the majority of your shelves full and how do you do that depending on closeouts when you don't know what they will be and when they will be. The point is it's impossible to stock thousands of store's with close outs. Yes, you can leave some money and space available but not the vast majority.
"However, the markets are missing the opportunities that off-price retailers will have in the near future - particularly with other retailers and suppliers liquidating their out-of-season merchandise to off-price retailers, at rock-bottom prices"

ROST has 1,800 stores, TJX has maybe 4,000 do you really believe that you can stock that many stores by buying "opportunities". As a merchandise provider to both of them and also, BURL, there is no way you can stock that many stores without buying many months in advance. Of course, they allocate a certain amount of funds for "opportune buys" but that is under 5% the other 95% goes into bringing in containers made specifically for them. So while there will be opportune buys it's in no way a significant factor.
Riyado Sofian profile picture
What sets off-price retailers apart from most retailers is their fast inventory turnover and flexible business model. Firstly, their ability to sell goods at a faster pace means they'll have more shelf space and cash in hand to purchase more goods. Secondly, they are flexible in a way that they can purchase the best deals and with an oversupply of unsold inventory in the market, that creates a buying paradise for off-price retailers. Also, inside the containers "made specifically for them" are the deals that I just mentioned.
quantsb profile picture
Agnmills - Close-out sales as a percent of sales is likely around 65%-75% for ROST, lower for TJX because of homegoods mix but your statement about allocating less than 5% for "opportune buys" is factually incorrect. BIG close-out sales as a % of sales is probably HSD%... and BIG isn't even a true off-price model.
Nice summary with added color on profitability, buying practices and inventory turnover. Don't see that very often on SA.

Their Q2 earnings may not be worse than the department stores. Remember that Ross and TJ's quarter includes May, June and July. April closures were in Q1.

Regarding cheap inventory- it may be cheap and plentiful, but they already have spring inventory in store-away. Ross took a pretty good impairment charge of theirs. And while they may be able to pick up surplus summer inventory, we're already entering fall and back to school season.

And on top of inventory Ross and TJ have not been paying their full rent. That's a large expense that hasn't been talked about much. They'll be survivors for sure, but I don't expect much more at current valuations. I've lightened up on retail closing my posiiton in TJX while hanging on to Ross and Ulta.
Riyado Sofian profile picture
Thanks for the comment. I agree with what you said: Q2 will be significantly better than Q1 for off-price retailers and current valuations not attractive enough. In the meantime, I'd wait for a better price for ROST.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.