May 20, 2015
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Off-price retailers strike gold from West Coast slowdown

May 20, 2015

Not every U.S. retailer has cause to complain about the West Coast port disruptions. For those focused more on price than the latest fashion, the delivery backlog caused by the slowdown could be a treasure trove.

Off-price retailers such as TJX Cos Inc, which sell high-quality merchandise at low prices, are snapping up orders canceled by traditional stores in the congestion that follows a months-long labor dispute.

The fallout from the port strikes was a bright spot in TJX's better-than-expected quarterly results and augurs well for off-price rivals Ross Stores Inc and Burlington Stores Inc as they prepare to report results.

"It created an opportunity for off-price retailers to capitalize on the plethora of merchandise available in the market place at very favorable prices," said Stifel analyst Richard Jaffe.

Off-price retailers thrive by offering labels such as Dolce and Gabbana or Juicy Couture at low prices. Often, this is off-season merchandise sourced from manufacturers or department store operators.

They also take advantage of forecasting mistakes, canceled orders and inventory overruns to offer shoppers a good deal.

TJX, owner of the TJ Maxx and Marshalls chains, raised its full-year profit and comparable sales forecast, mainly because more bargain-hungry shoppers are visiting its stores.

The company said it was hard to pinpoint the extent to which the West Coast slowdown had helped its first-quarter results.

"... We have to believe some of it was," TJX President Ernie Herrman said on a post-earnings conference call.

Clothes and home furnishings at off-price stores are typically priced anywhere between 20 percent and 60 percent lower than those at traditional retailers and department stores.

Off-price retailers keep inventories lean to adjust to changing fashion trends, sourcing goods within a few weeks, while full-price retailers tend to source seasonally and from further afield.

During the port disruptions, vendors sought to sell rejected merchandise to off-price retailers such as TJ Maxx and Ross at reduced prices, rather than send everything back to China, said Cantor Fitzgerald analyst Laura Champine.

"Anything that disrupts retail is very good for the off-price guys," she said.

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