Supply chain disruptions could benefit off-price chains like TJ Maxx and Burlington Stores

Supply chain disruptions have caused problems for many retailers, but for the non-price sector they may present an opportunity.

Bank of America analysts led by Lorraine Hutchinson say the category is poised for stock growth in 2022 after a period of underperformance during the pandemic. Shares of TJ Maxx and HomeGoods parent company TJX Cos. TJX,
gained 10.6% over the past year. But Ross Stores Inc. ROST,
stock and shares of Burlington Stores Inc. BURL,
both declined, by 15.3% and 5.6% respectively.

The S&P 500 SPX index,
has gained 18.8% over the past 12 months.

“The supply chain disruption creates a unique sourcing opportunity for off-price retailers, primarily for packaged inventory,” BofA wrote in a report.

“Many retailers will cancel or not accept late deliveries due to seasonality/changing product trends. Off-Prices can then source these items at great value prices and either store them for later seasons or use them to supplement the store’s current inventory.

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Admittedly, the off-price category is not immune to pandemic pressures. Analysts note that these companies are feeling the pressure of rising costs and expect moderation as the year progresses and the pressures ease.

However, these three big players are gaining market share, mainly in department stores, even if off-price retailers do not have strong e-commerce businesses.

“[M]meaning that the non-price value proposition and in-store experience is compelling enough to keep customers making visits,” the report states.

And these retailers have the ability to raise prices.

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“Given the general scarcity of products, retailers have limited their promotional activity, which has led to higher realized prices. This dynamic has created a price-taking opportunity for off-price retailers, which could help offset rising transportation and supply chain costs while delivering value to customers by offering products at a great value to traditional retailers,” BofA said.

The home category also continues to do well for off-prices.

BofA is evaluating the purchase of TJX, Ross and Burlington stocks. TJX has a price target of $95. Ross, who BofA says has the most upside, has a price target of $150. And Burlington’s price target is $350.

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