TJX is on a buying spree as excess inventory and closeouts boost supply

Ask TJX Companies CEO Ernie Herrman about the availability of quality off-price merchandise, and he’ll likely hit you with some kind of superlative: “Terrific,” “outstanding,” “exceptional.” He deployed all of these in the company’s most recent earnings call to emphasize that the getting is good when it comes to product availability.

The parent company of TJ Maxx, Marshalls, and HomeGoods has long been a repository for excess inventory, but lately it’s benefitting from an especially strong secondary market for branded merchandise, which is essential to its stores’ vaunted “treasure hunt” experience, Herrman said.

“We are going after brands in a more aggressive manner than we also have ever had before,” Herrman said in the company’s Q4 earnings call earlier this month. “We mean more to the branded vendor community than ever.”

Availability is so good that TJX is telling its 1,400 buyers to slow their roll, which is giving TJX “great confidence that we will have plenty of access to goods going forward,” Hermann said.

What’s behind this surfeit of quality goods is a combination of excess inventory, increased closeouts, and liquidations—and by extension more buying opportunities—and a greater acceptance on the part of brands to move their goods into off-price channels.

Simply irresistible: The source of excess inventory in particular is that mainstream retailers have struggled to accurately forecast demand and gotten saddled with goods they couldn’t sell at full price, Michael Brown, partner at Kearney, told Retail Brew. Then as this situation became apparent to off-price retailers, he added, “they grew very, very fast,” and “became a channel that suppliers could not resist anymore.”

In addition, brands faced increasing pressure to move down the value chain as traditional outlets such as department stores struggled, Brown said. So what was once exclusive to, say, Macy’s became available at Walmart or TJ Maxx.

Alex Hennick, president of A.D. Hennick, a liquidator and buyer of distressed assets, said a steady clip of closeouts is also responsible for the robust supply of off-price goods, pointing to recent high-profile bankruptcies such as Eddie Bauer. The upside is more liquidations and more auctions for more goods. “I’ve seen an increase in terms of the quantity of items that are available,” he said.

He’s also noticed a loosening of what he calls “brand restrictions,” which are the terms brands put in place determining where their products can be sold. While it varies based on the brand, he said “more people are open” to moving their goods into off-price channels, so long as they can “protect their regular customer base.”

Regular buyer: The situation has allowed companies such as TJX to be more proactive about meeting with brands to secure products, rather than just waiting for them to come tumbling down the value chain by way of a liquidation process. “Our teams are doing a lot more regular meetings with some of the key brands through various levels of their management with our management,” Herrman said.

As a result, TJX is no longer just a liquidation channel. “They have regular buys,” Brown said, which “they combine with their opportunistic buys.”

But these opportunistic buys remain essential to their business model. Without those fresh infusions of quality off-price goods coming from closeouts, “they’re just another retailer that’s going to have to pre-plan their whole assortment,” Brown said, putting them at risk of needing their own liquidation channel if they ever miscalculate.

In the meantime, though, TJX is confident in the long-term viability of its approach.

“I know you guys like to have fun with whatever wording we’re using,” Herrman told analysts, “but today it’s ‘outstanding’ and ‘off the charts.’”