Off-Price Retailers Continue to Play to Their Strengths
On Performance: Off-Price Retailers in 3Q15
Consistent performance
Off-price retailers such as The TJX Companies (TJX) and Ross Stores (ROST) have performed consistently even during adverse macro situations. The third quarter ended October 31, 2015, was the 27th consecutive quarter of same-store sales growth for both TJX and Ross Stores. Burlington Stores (BURL) has reported a same-store sales growth in 20 of the last 23 quarters and 3Q15 was the 11th consecutive quarter of positive same-store sales growth.
Key strengths
Some of the key strengths of these off-price retailers include flexible low-cost business models, strong supplier relations, and efficient inventory management. At the end of fiscal 2014 ended January 31, 2015, Ross Stores had a team of about 700 merchants and a network of 8,200 merchandise vendors and manufacturers. TJX had over 1,000 merchants in 13 buying offices in ten countries and a network of over 17,000 vendors as of the end of the comparable fiscal year.
Such an extensive vendor universe provides off-price retailers a great deal of flexibility and ensures that their purchases are not restricted to only a few suppliers. None of Burlington Stores’ suppliers accounted for over 2% of its net purchases during fiscal 2014.
Ross Stores’ higher inventory turnover in 3Q15
In 3Q15 ended October 31, 2015, Ross Stores’ inventory turnover ratio was 5.3x, compared with TJX’s 5.2x and Burlington Stores’ 3.3x. Nordstrom (JWN), which derived 31.3% of its 3Q15 net sales from its off-price business (Nordstrom Rack stores and off-price online channels), had an inventory turnover ratio of 3.9x in 3Q15. Department stores Macy’s (M) and Kohl’s (KSS) had inventory turnover ratios of 2.1x and 2.4x, respectively, in 3Q15.
The extensive assortment of fresh merchandise and attractive bargains offered by these off-price retailers help to increase store traffic, which leads to higher sales and inventory turnover. Together, Ross Stores and TJX account for 0.7% of the holdings of the iShares Russell 1000 Growth ETF (IWF) and 1.8% of the First Trust Consumer Discretionary AlphaDEX ETF (FXD). Efficient inventory management also positively impacts the margins of off-price retailers. The next part of this series will discuss the margins of these off-price retailers.
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