This Week: Off-Price’s Moment to Shine

If and when tariffs start to reshape American consumer behaviour, it’s off-price retail — built around the dream of fashionable-enough offerings at below-market prices — where we may see those changes show up first.

The two biggest US off-price players report second-quarter earnings this week: T.J. Maxx and Marshalls owner TJX on Wednesday, and rival Ross Stores on Thursday. Target, which chases the same fashion customer, also reports on Wednesday.

The Trump Effect: Inflation data last week indicated brands are gradually starting to pass along higher costs to consumers, who in turn are feeling gloomier about the economy and their own financial position. Those are all powerful incentives to trade down, and off-price, with the promise of discovering last season’s treasures on deep discount, is where frugal shoppers turn first.

What’s Taking So Long?: First-quarter results for these companies ranged from disappointing for the off-price retailers to troubling for Target.

That was partly because the tariffs hadn’t kicked in during the reporting period. But there are also questions about whether what’s happening in the wider market will automatically benefit off-price. Ross and its rivals were quick in their post-Liberation Day earnings calls to point out that they source only a small fraction of inventory from China. But that only factors in what they buy directly from overseas manufacturers; a batch of Chinese-made sweaters will still probably cost more at T.J. Maxx, whether they were sourced from a mall in Paramus, New Jersey or a Guangzhou factory.

So while these chains will likely see an influx of middle-income shoppers trading down, they will also lose some of their existing customers who suddenly find even T.J. Maxx’s coveted yellow-tag final markdowns too pricey.

Good News Incoming: The early data indicates the trading down effect is working in off-price’s favour. According to Placer.ai, which tracks store traffic, visits to T.J. Maxx jumped 8.3 percent in July from a year earlier, and over 7 percent at Ross and Burlington, building on gains throughout the spring and summer. We’ll find out this week how much customers spent on those visits, and whether the chains expect the rest of the year to play out in similar fashion.

Bad News for Everyone Else: It’s no mystery where that extra traffic is coming from. Visits to Macy’s plunged 10 percent in July, and Kohl’s and other retailers saw smaller declines. Of course, the battle between off-price retailers and department stores was over long ago; TJX’s market capitalisation is nearly $150 billion, while Macy’s is $3.4 billion.

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